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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 1-10064
DR PEPPER/SEVEN-UP COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2233365
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
8144 WALNUT HILL LANE, DALLAS, TEXAS 75231-4372
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 360-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
11 1/2% SENIOR SUBORDINATED DISCOUNT NOTES AMERICAN STOCK EXCHANGE
DUE 2002
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1995 was $26.2 million.
The number of shares of each class of common stock of the Registrant
outstanding as of March 15, 1995 was as follows: 801,977 shares of
Common Stock and no shares of Non-Voting Common Stock.
The following documents are incorporated by reference into this report:
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on or about June 1, 1995, are incorporated by
reference in Part III.
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T A B L E O F C O N T E N T S
FORM 10-K ANNUAL REPORT - 1994
DR PEPPER/SEVEN-UP COMPANIES, INC.
Page
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and Related 14
Stockholder Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial 17
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on 21
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners 22
and Management
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statements, Financial Statement 22
Schedules and Reports on Form 8-K
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P A R T I
ITEM 1. BUSINESS
THE COMPANY
Dr Pepper/Seven-Up Companies, Inc., a Delaware corporation, is a holding
company organized in 1988 whose primary asset consists of all the common stock
of Dr Pepper/Seven-Up Corporation, a Delaware corporation ("DP/7UP"). Unless
the context requires otherwise, the "Company" means Dr Pepper/Seven-Up
Companies, Inc., together with its direct and indirect subsidiaries, and the
"Holding Company" means Dr Pepper/Seven-Up Companies, Inc. As used in this
document, the term "DR PEPPER" refers only to the regular DR PEPPER product
while the phrases "DR PEPPER brand" and "DR PEPPER brands" refer to the line of
products consisting of DR PEPPER, Diet DR PEPPER, Caffeine Free DR PEPPER and
Caffeine Free Diet DR PEPPER. As used in this document, the term "7UP" refers
only to the regular 7UP product while the phrases "7UP brand" and "7UP brands"
refer to the line of products consisting of 7UP, Diet 7UP, CHERRY 7UP and Diet
CHERRY 7UP.
The Holding Company was formed in 1988 to acquire Dr Pepper Company
("Dr Pepper") and The Seven-Up Company ("Seven-Up") in a leveraged buyout
transaction sponsored by Prudential-Bache Interfunding, Inc., Prudential-Bache
Capital Partners I, L.P. and management. On October 28, 1992, the Company
completed a recapitalization transaction (the "1992 Recapitalization"). As
part of the 1992 Recapitalization, Seven-Up merged with and into Dr Pepper.
DP/7UP, the surviving company, is a direct operating subsidiary of the Holding
Company.
TENDER OFFER
On January 25, 1995, the Company, Cadbury Schweppes plc, a company organized
under the laws of England ("Cadbury"), and DP/SU Acquisition Inc., a Delaware
corporation and an indirect wholly owned subsidiary of Cadbury ("Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant
to the Merger Agreement, on February 1, 1995, Cadbury commenced a tender offer
(the "Offer") to acquire all issued and outstanding shares of common stock of
the Holding Company ("Common Stock") not already owned by Cadbury at a price of
$33.00 per share. The Offer expired, as scheduled, at midnight (New York City
Time) Wednesday, March 1, 1995. A total of 45,387,980 shares of Common Stock
were purchased by Purchaser pursuant to the Offer. As a result of such purchase
and the prior acquisition of shares of Common Stock, Purchaser and other
wholly owned subsidiaries of Cadbury own approximately 98.7% of the issued
and outstanding shares of Common Stock. Upon the approval and adoption of
the Merger Agreement by the affirmative vote of the stockholders of the
Company to the extent required by the laws of the State of Delaware, a wholly
owned subsidiary of Purchaser will merge (the "Merger") with and into the
Company, and each share of Common Stock (other than shares held in the
treasury of the Company, or owned by Parent or any of its subsidiaries or
held by stockholders who have filed with the Company a written objection to
the Merger and have not voted in favor of the Merger and who have properly
demanded in writing and perfected appraisal for such shares in accordance
with the laws of the State of Delaware) shall be automatically converted into
the right to receive $33.00 in cash, without interest. A meeting of the
stockholders of the Company will be held as soon as practicable for the
purpose of obtaining such approval.
The foregoing description of the Merger Agreement is a summary only and is
qualified in its entirety by reference to the form thereof filed as Exhibit
2.1 to this Form 10-K and incorporated herein by reference in its entirety.
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SUBORDINATED DEBT RETIREMENT
During 1994, the Company completed open market purchases of a portion of its
11 1/2% Senior Subordinated Discount Notes due 2002 (the "Discount Notes").
The Company borrowed $94.6 million under its credit agreement (the "Credit
Agreement") to retire $79.4 million accreted value of the Discount Notes. In
connection with these transactions, the Company recorded an extraordinary
charge of $11.2 million. The charge reflected a write-off of a portion of the
unamortized balance of deferred debt issuance costs as well as the premium paid
in excess of accreted value, net of tax.
PREFERRED STOCK REDEMPTION
On July 8, 1994, DP/7UP called for redemption all of its outstanding shares of
the $1.375 Senior Exchangeable Preferred Stock, $.01 par value per share, of
DP/7UP (the "DP/7UP Preferred Stock"). All 1,268,174 outstanding shares were
redeemed on August 31, 1994 at a redemption price of $10.9625 per share. DP/7UP
used $13.9 million of Credit Agreement borrowings to effect the redemption.
1993 PUBLIC OFFERING
In February 1993, the Company completed an initial public offering (the
"Offering") of 23,600,402 shares (including 2,022,089 shares sold by a selling
stockholder and certain selling warrantholders) of its Common Stock resulting
in net proceeds to the Company of approximately $305.9 million. The net
proceeds were used to redeem approximately $115.5 million of the accreted
balance of the Discount Notes, reduce borrowings of approximately $82.5 million
under the Credit Agreement and redeem all of the outstanding exchangeable
Senior Preferred Stock of the Holding Company.
PRINCIPAL PRODUCTS
The Company, through DP/7UP, manufactures, markets, sells and distributes
soft drink concentrates, extracts (the basic flavoring ingredients for soft
drinks) and fountain syrups (concentrates or extracts with sweeteners and water
added) to licensed bottlers primarily in the United States. The principal
products of the Company are DR PEPPER, Diet DR PEPPER, Caffeine Free DR PEPPER,
Caffeine Free Diet DR PEPPER, 7UP, Diet 7UP, CHERRY 7UP, Diet CHERRY 7UP,
WELCH's carbonated soft drinks and I.B.C. soft drinks. The Company is the
third largest soft drink concentrate manufacturer in the United States, with
retail sales of its products estimated to represent approximately 11.6%, or
$5.8 billion, of the estimated $50.1 billion 1994 United States retail soft
drink industry.
DP/7UP is divided into five business units: Dr Pepper USA, Seven-Up USA,
Foodservice, Premier Beverages, and International. Each unit has its own
selling and marketing staff fully dedicated to expanding and enhancing
its brands.
Soft drinks constitute one of the largest consumer food and beverage
categories in the United States. The industry is considered to be
non-cyclical, as sales volume has grown in each of the past ten years. The
Company's business, like the concentrate and extract segment of the soft drink
industry overall, is characterized by low fixed asset investment, low working
capital requirements, low labor intensity, and high gross margins, all of which
enable the Company to devote significant resources to the marketing support of
its brands. A major
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competitive advantage in the industry is strong trademark recognition.
Formulated in 1885, DR PEPPER is the oldest nationally distributed soft drink
brand in the United States. 7UP has been a market leader in the lemon-lime
category of the soft drink industry for more than 60 years.
In 1994, DR PEPPER brands accounted for an estimated 7.0% of the total
domestic soft drink market, up from 6.7% in 1993. Since 1986, DR PEPPER has
been the number one selling non-cola and, in 1993, became the fourth largest-
selling soft drink in the United States. The estimated share of the total
domestic soft drink market represented by DR PEPPER increased from 5.6% in 1993
to 5.8% in 1994.
7UP brands represented an estimated 3.9% of the total domestic soft drink
market in 1994 and 1993. 7UP is a leader in the largest non-cola soft drink
flavor category, lemon-lime, which is estimated to have accounted for 12.3% of
the total 1994 domestic soft drink market. 7UP ranked as the eighth largest
selling soft drink brand in 1994. 7UP is the second largest selling sugared
lemon-lime brand and represents 23.7% of sales in the lemon-lime category.
Diet 7UP is the number one diet lemon-lime soft drink with a 1994 share of 0.8%
of the total domestic soft drink market and, in 1994, accounted for
approximately 6.3% of the lemon-lime category sales volume.
Dr Pepper USA represented 40.5% of the Company's 1994 net sales. Dr Pepper
USA's net sales were up 10.3% in 1994 with unit sales of combined DR PEPPER
brands growing at a significantly greater rate than the total domestic soft
drink industry. This unit sells DR PEPPER brand concentrates to bottlers for
further processing into bottle and can products that are distributed
nationwide. The Company has been able to affiliate its DR PEPPER brands with
what management believes are strong and aggressive bottlers.
Seven-Up USA represented 28.8% of the Company's 1994 net sales. Seven-Up
USA's net sales were up 2.8% in 1994 from 1993. This unit sells 7UP brand
extracts to bottlers for further processing into bottle and can products that
are distributed nationwide.
The Foodservice Division accounted for 19.9% of the Company's 1994 net sales
and was up 11.1% from 1993. This unit's brands, primarily DR PEPPER, have a
significant presence in the fountain/foodservice channel of the soft drink
industry. The Company has been successful at securing foodservice distribution
alongside products of both The Coca-Cola Company ("Coke") and PepsiCo, Inc.
("Pepsi"). Company brands are served in over 120,000, or approximately 16.0%,
of the nation's foodservice outlets. Significant customers of the foodservice
unit include McDonald's, Burger King, Taco Bell, 7-Eleven, Hardee's and
Wendy's.
The Company's Premier Beverages unit markets WELCH's carbonated soft drinks
and markets and sells I.B.C. Root Beer and Cream Soda. Together, these brands
represented 9.0% of the Company's 1994 net sales and were up 17.8% from 1993.
These additional products permit the Company to offer a broad line of
high-quality, non-cola options.
The International unit accounted for 0.6% of the Company's net sales for
1994. At the end of 1994, the International unit had licensed bottlers to sell
DR PEPPER brand products in 17 countries. In 1986, Pepsi acquired the rights
to produce and market products under the 7UP trademark outside of the United
States and its territories and possessions. See "Financial Information About
Foreign and Domestic Operations and Export Sales".
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SOURCES AND AVAILABILITY OF RAW MATERIALS
Substantially all of the raw materials used by the Company to manufacture
its products are of a generic nature and are available from alternative
suppliers. The Company does not anticipate any significant difficulties in
securing adequate supplies of raw materials at acceptable prices in the future.
TRADEMARKS
The trademarks under which the Company markets its soft drink products are
registered in the U.S. Patent and Trademark Office. Registered trademarks are
protected for 10 years and can be renewed indefinitely. The DR PEPPER
trademark is also registered in 93 countries. Other than its license
agreements with bottlers, the Company has no material existing trademark
license agreements permitting the use of its trademarks in advertising.
Strong trademark recognition is a major competitive advantage in the soft
drink industry.
SEASONAL ASPECTS OF THE BUSINESS
The Company's business is seasonal, with the second and third quarters
accounting for the highest sales volume.
PRACTICES RELATING TO WORKING CAPITAL
Until March 6, 1995, the Company had significant amounts of long-term debt
consisting of bank borrowings and subordinated notes. Accordingly, the
Company's financial position was highly leveraged and interest payments were
significant. Effective as of March 6, 1995, the Company's Term Loan Facility
and Revolving Facility (each as hereafter defined) were repaid with cash
provided by Cadbury, and the Credit Agreement was terminated.
DEPENDENCE ON SINGLE OR FEW CUSTOMERS
During 1994, bottling companies owned by Pepsi accounted for 13.8% of the
Company's 1994 net sales. The license agreements with such bottling companies
are substantially similar to the Company's license agreements with its other
bottlers.
BACKLOG OF ORDERS
No material backlog of orders is maintained.
GOVERNMENT REGULATION
The production and marketing of beverages are subject to the rules and
regulations of the United States Food and Drug Administration ("FDA") and
other federal, state and local health agencies. The FDA also regulates the
labeling of containers.
COMPETITION
The soft drink business is highly competitive. The principal methods of
competition in the soft drink industry are advertising campaigns, promotions,
pricing, packaging and new product development. The Company competes not only
with other soft drink companies for consumer acceptance but also for shelf
space in
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supermarkets and for maximum marketing focus by the Company's licensed
bottlers, all of which also bottle other soft drink brands. The Company's
soft drink products compete generally with all liquid refreshments, with
numerous nationally-known soft drinks such as Coca-Cola and Pepsi-Cola, and
with regional producers and "private label" soft drink suppliers.
SPONSORED RESEARCH AND DEVELOPMENT
Research and development costs were relatively insignificant in years 1992,
1993 and 1994.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
Compliance with statutory requirements regarding environmental quality has
not had a material effect on the capital expenditures, earnings and competitive
position of the Company.
EMPLOYEES
As of December 31, 1994, the Company (through DP/7UP) employed 951 persons,
consisting of 341 individuals engaged in sales activities, 181 engaged in
administrative activities, 114 engaged in financial activities, 173 engaged in
production activities and 142 individuals engaged in marketing activities. No
Company employees are represented by a union and the Company considers its
employee relations to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Dr Pepper's foreign operations generated less than 1% of the Company's net
sales in years 1992, 1993 and 1994. Additionally, the Company does not expect
foreign operations to be significant in the immediate future.
Prior to the acquisition of Seven-Up in 1986, Philip Morris Incorporated
sold the international franchise operations of Seven-Up to Pepsi. Accordingly,
Pepsi holds the right to produce and sell soft drinks under the 7UP and certain
associated trademarks internationally. The terms of this sale prohibit
Seven-Up from distributing any of its soft drink products existing at the time
of such transaction (other than I.B.C. Root Beer), as well as any products
developed thereafter that are marketed under the 7UP trademark, outside of the
United States and its territories and possessions.
ITEM 2. PROPERTIES
The Company owns, through a wholly-owned subsidiary, a state-of-the-art
facility in Overland, Missouri, where it manufactures concentrates, extracts
and fountain syrups. This facility is the largest soft drink concentrate,
extract and syrup plant in the continental United States and produces over 150
different flavor extracts, including concentrates and syrups related to
Cadbury brands. The Company manufactures all of its concentrates,
extracts and fountain syrups in this facility. The Company does not own or
lease any other facilities for the manufacture of concentrates, extracts or
fountain syrups. The Company has developed a production contingency plan with
another concentrate manufacturer to produce certain of the Company's products
in the event that the Overland facility were rendered inoperative. The
Overland facility has substantial additional capacity available with minimal
capital expenditures required.
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The Company leases its Dallas headquarters office building, which presently
covers approximately 175,000 square feet of space. Rental payments are
currently $339,000 per month, subject to escalation at stated intervals in the
future. The lease expires in 1998. The Company also leases a warehouse in
Dallas covering approximately 73,000 square feet of space. Rental payments
approximate $23,000 per month. The Company believes that its headquarters,
warehouse and production facilities are sufficient to meet its needs.
ITEM 3. LEGAL PROCEEDINGS
CONTINGENCIES
(A) THE COCA-COLA COMPANY ("COKE") LITIGATION
On February 26, 1992, Seven-Up filed a lawsuit in the 116th Judicial
Court, Dallas County, Texas (the "State Court Suit") against Coke
alleging, among other things, tortious interference with Seven-Up's
existing contractual relationships with those licensed bottlers who
also bottle products of Coke, and unfair competition. On July 22,
1992, Seven-Up also filed a lawsuit against Coke in the United States
District Court for the Northern District of Texas (the "Federal Court
Suit") alleging false advertising under Section 43 of the Lanham Act.
On October 3, 1994, trial before a jury commenced in the Federal
Court Suit. The jury found for Seven-Up, awarding it $2.5 million
damages. However, the federal magistrate overturned the jury's
verdict, finding that although Coke had engaged in false advertising,
Seven-Up had suffered no damages thereby. Seven-Up has appealed the
magistrate's ruling to the Fifth Circuit Court of Appeals, and Coke
has filed a cross-appeal. These appeals are in a preliminary
briefing phase at this time.
Following the magistrate's rulings in the Federal Court Suit, Coke
moved for summary judgment in the State Court Suit on procedural
grounds. The state court judge granted Coke's motion for summary
judgment on Seven-Up's claims. Coke had also filed counterclaims in
the State Court Suit alleging that Seven-Up had tortiously interfered
with Coke's existing contractual relationships with those licensed
bottlers of Coke who are also licensed to bottle Sprite products.
That counterclaim is still pending in the state court. Seven-Up has
requested that the court sever the counterclaim from Seven-Up's
claims and abate it in order to enable Seven-Up to proceed with
appeal of the state court's ruling on Coke's motion for summary
judgment.
The Company intends to vigorously pursue its claims on appeal, but is
presently unable to predict the outcome of these lawsuits. The
Company does not expect that the resolution of these matters will
have a material adverse effect on the Company's operating results or
financial condition.
(B) INTERNAL REVENUE SERVICE MATTER
The Internal Revenue Service has completed its examination of Federal
income tax returns of Dr Pepper and Seven-Up for the period ended
December 31, 1986, December 31, 1987 and May 19, 1988, and of the
Company for the period ended December 31, 1988. The Company was
notified of proposed IRS adjustments disallowing certain deductions,
including substantially all
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amortization of intangible assets related to the 1986 acquisitions of
Dr Pepper and Seven-Up. During the second quarter of 1994, the
Company accepted a global tax settlement from the IRS with respect to
certain proposed adjustments relating to the deductibility of a
portion of intangible assets. As a result of the settlement, the
Company reduced its recorded deferred tax liabilities by
approximately $65.0 million. The corresponding effect of this
adjustment to deferred tax liabilities was applied as a reduction of
intangible assets for financial reporting purposes. If the remaining
proposed IRS adjustments are sustained, in whole or in part, the
Company's net operating loss carryforwards for federal income tax
purposes would be significantly reduced. The Company is vigorously
contesting the remaining proposed adjustments. Management of the
Company believes the ultimate resolution of the remaining proposed
adjustments will not have a material adverse effect on the Company's
operating results or financial condition.
(C) SHAREHOLDER LITIGATION
On October 26, 1994, a complaint styled KING V. DR PEPPER/SEVEN-UP
COMPANIES, ET AL. ("King"), was filed in the U.S. District Court
for the Northern District of Texas, Dallas Division, alleging that
the defendants violated Section 10(b) and Rule 10b-5 under the
Exchange Act by failing to reveal the true status of merger
discussions between the Company and Cadbury. The complaint alleges
that the defendants knowingly or recklessly engaged in a plan to
depress the market price of the Company's securities by misstating
and concealing material information concerning the true status of
merger discussions with Cadbury. In addition, the complaint alleges
that John Albers, President and Chief Executive Officer of the
Company, violated Section 20(a) of the Exchange Act by failing
to disseminate truthful information with respect to the Company's
business. Relief requested includes unspecified damages and expenses
(including attorneys' fees). As a result of defendants' motion to
dismiss based on the plaintiff's failure to plead fraud with
specificity and failure to state a claim for securities fraud,
on January 24, 1995, the judge in the suit issued an Order to File
Amended Complaint to the plaintiff, which gave the plaintiff 20 days
in which to amend her complaint to cure the deficiencies noted in the
order. Subsequently, the plaintiff has amended the complaint to cure
the Court's concerns. The defendants believe the complaint is
without merit and intend to defend the case vigorously.
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In connection with the Offer and the Merger, several putative class
action complaints (the "Shareholders Suits") were filed in the Court
of Chancery of the State of Delaware and the state courts of Texas
naming the Company and certain directors as defendants and alleging
that the defendants breached their fiduciary duties to the Company
and its stockholders. These suits are described in item 8 of the
Solicitation/Recommendation Statement on schedule 14D-9 filed by the
Company with the Securities and Exchange Commission on February 1,
1995, as amended (the "14D-9"), which information is incorporated
herein by reference. The portion of the 14D-9 setting forth such
information is filed as Exhibit 99 to this Form 10-K.
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On February 10, 1995, all of the Shareholder Suits, except for the
King case, were consolidated in IN RE: DR PEPPER/SEVEN-UP COMPANIES,
INC. SHAREHOLDERS LITIGATION, Civil Action No. 13109 (the
"Consolidated Action"), in the Court of Chancery of the State of
Delaware (the "Delaware Court"). In the Consolidated Action,
plaintiffs and defendants (through their respective counsel), have
entered into a Memorandum of Understanding, dated February 21, 1995
(the "Memorandum of Understanding"), pursuant to which the
Consolidated Action will be settled. The settlement contemplated by
the Memorandum of Understanding will not be effective unless, among
other things, the plaintiffs in the suit styled SARNOFF V.
DR PEPPER/SEVEN-UP COMPANIES ET AL execute the appropriate
documentation necessary to have the action pending before the Texas
Court non-suited and refiled with the Delaware Court, at which time
the refiled Sarnoff case will be consolidated with and become part of
the Consolidated Action. The proposed settlement is subject to, among
other things, approval of the Delaware Court and is fully described
in the 14D-9.
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(D) STEINER LITIGATION
Sidney J. Steiner, the landlord under the Company's
former lease covering its former headquarters facilities at 5523
East Mockingbird Lane, Dallas, Texas, and Harbord Midtown, a Texas
partnership, filed suit against the Company in the 95th Judicial
District Court, Dallas County, Texas, on May 25, 1988 in
connection with the Company's move of its corporate headquarters.
The landlord has alleged that the Company breached an oral
agreement to lease space in a new office building the landlord
planned to construct on such premises. The landlord seeks to
recover $470,000 in architectural fees and other costs claimed
to have been incurred as a result of such agreement and the
landlord claims to have suffered $24.0 million in other damages
as a result of the Company's alleged breach. Additionally, on
October 12, 1989, the landlord amended its complaint in this
cause of action to include allegations that the Company
fraudulently misrepresented the existence of asbestos in the
Company's former headquarters facilities, which were purchased by
the landlord and leased back to the Company in 1985. The
landlord claims damages in excess of $4.0 million related to
these new allegations.
The lawsuit was dismissed without prejudice pursuant to
an Agreed Order Granting Joint Motion for Non-Suit on
May 18, 1992. Subsequent to filing the lawsuit,
Steiner sold the property and the claim in
litigation to a third party, who in turn later sold the
property and the claim to another party, who became a
debtor in a bankruptcy proceeding. The trustee in
bankruptcy sold the claim in the lawsuit to Canco
Properties ("Canco"), San Antonio, Texas, who refiled
the lawsuit on January 29, 1993. By letter dated
September 21, 1993, Canco claimed that additional
discovery and investigation resulted in an increase in
estimated damages, and now estimates their damages to
be over $31.5 million with punitive damages in excess
of $50.0 million in the aggregate. On May 4, 1994,
Canco amended its petition to add claims for negligent
misrepresentation and fraud
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based upon the Company's alleged failure to
disclose the existence of water leaks in the building at
the time the building was sold to Steiner in August 1985.
On February 17, 1995, Canco again amended its petition,
dismissing its claims that the Company breached an alleged
oral agreement to become a tenant in a new building to be
constructed by Canco, but adding claims that the Company
breached the original 1985 sale agreement by failing to
disclose the presence of asbestos on the property. Canco's
amended petition seeks unspecified monetary damages and
rescission of the original transaction. By letter
dated March 6, 1995, Canco now claims their monetary
damages to be approximately $35.0 million (excluding
interest). The court has taken this case off the trial docket,
pending further consideration of the Company's motion for
summary judgement and in light of recent changes in Texas law.
The Company believes that this lawsuit is without
merit and is vigorously contesting the same. The Company
further believes that the resolution of this litigation will
not have a material adverse effect on its operating results
or financial condition.
On December 4, 1990, Steiner filed a claim with the
American Arbitration Association seeking compensation
for damage allegedly caused by the Company to its
former corporate headquarters building during the
Company's occupancy of such building as tenant under a
lease agreement with Steiner. This claim was
subsequently sold in the same manner as described in
the immediately preceding paragraph with respect to the
litigation and is now owned by Canco. Canco presently
seeks damages in connection with this claim in the
amount of approximately $11.5 million as well as an
unspecified amount of punitive damages and attorneys'
fees. An arbitration hearing with respect to this
claim began on November 8, 1993 in Dallas, Texas;
however, due to the death of the arbitrator, a new
arbitrator was appointed. The parties conducted the
arbitration hearing from June 28 through July 7, 1994.
The arbitrator awarded Canco $150,000 for its claims in
the arbitration; however, because the arbitrator
determined that the Company was the prevailing party in
the arbitration, the arbitrator awarded the Company
approximately $139,000 in attorneys' fees. Therefore,
the net amount paid to Canco by the Company was
approximately $11,000.
Canco has filed suit in the 68th Judicial District
Court, Dallas County, Texas, seeking to vacate the
arbitration award on the grounds that the arbitrator
was not impartial. The Company believes that this
lawsuit is without merit and is vigorously contesting
the same. The Company further believes that the
resolution of this litigation will not have a material
adverse effect on its operating results or financial
condition.
(E) RIGHTS AGREEMENT AMENDMENT
Immediately prior to the execution of the Merger
Agreement, the Company amended the Rights Agreement (the
"Amendment"). The Amendment provides that (A) none of the
execution or delivery of the Merger Agreement or the Stockholders
Agreement or the making of the Offer will cause (i) the Rights (as
defined under the Rights Agreement) to become exercisable under the
Rights Agreement, (ii) Cadbury or Purchaser or any of their affiliates
to be deemed an Acquiring Person (as defined in the Rights Agreement)
or (iii) the Stock Acquisition Date (as defined in the Rights Agreement)
to occur upon any such event, (B) none of the acceptance for payment or
payment for Shares by Purchaser pursuant to the Offer or the
consummation of the Merger will cause (i) the Rights to become
exercisable under the Rights Agreement or (ii) Cadbury or
Purchaser or any of their affiliates to be deemed an Acquiring
Person or (iii) the Stock Acquisition Date to occur upon any such
event, and (C) the Expiration Date (as defined in the Rights
Agreement) shall occur no later than immediately prior to the
purchase of shares pursuant to the Offer. The Expiration Date occurred
on March 2, 1995, immediately prior to Purchaser's purchase of
shares pursuant to the Offer. Accordingly, the Rights expired.
13
<PAGE>
The foregoing description of the Amendment is a summary
only and is qualified in its entirety by reference to the form
thereof filed as Exhibit 3.4 to this Form 10-K, which is
incorporated herein by reference in its entirety. The Rights
Agreement has been filed as Exhibit 3.3 to this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, there were no matters
submitted to a vote of security holders through the solicitation of
proxies or otherwise.
P A R T I I
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial
data of the Company as of and for the years ended December 31,
1994, 1993, 1992, 1991 and 1990. This financial data was
derived from the historical consolidated financial statements
of the Company. The financial data reflects the elimination of
all intercompany accounts, transactions and profits among the
Holding Company, Dr Pepper, Seven-Up and DP/7UP. The financial
data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated
financial statements of the Company and the related notes
thereto. See "Index to Consolidated Financial Statements and
Schedules".
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $769,015 707,378 658,718 600,941 540,368
Cost of sales 127,650 115,981 126,002 118,757 109,857
Gross profit 641,365 591,397 532,716 482,184 430,511
Marketing expense 391,806 362,484 329,706 302,192 264,147
General and administrative
expense, including
amortization of intangible
assets 45,993 45,893 42,424 41,776 43,111
Operating profit 203,566 183,020 160,586 138,216 123,253
Interest expense:
Cash interest expense 42,378 43,833 77,921 73,527 81,382
Non-cash interest expense 38,074 41,727 72,324 74,430 65,099
Other expense(a) 824 1,249 18,937 9,120 8,744
Income (loss) before
income taxes, extraordinary
items and cumulative effect
of accounting change 122,290 96,211 (8,596) (18,861) (31,972)
Income taxes (benefit) 44,591 2,087 (182) 1,100 563
Extraordinary items:
Benefit from utilization
of net operating loss
carryforward -- -- -- (1,022) --
Extinguishments of
debt(b)(c)(d)(e) 11,180 16,199 56,934 18,566 --
Cumulative effect of
accounting change(f) -- -- 74,800 -- --
Net income (loss) 66,519 77,925 (140,148) (37,505) (32,535)
Preferred stock dividend
requirements -- -- 12,941 11,882 9,744
Net income (loss)
attributable to outstanding
common stock 66,519 77,925 (153,089) (49,387) (42,279)
Income (loss) before
extraordinary items and
cumulative effect of
accounting change per
common share(b)(c)(d)(e)(f)(g) 1.13 1.46 (.60) (.90) (1.19)
Other Data:
Depreciation $ 2,925 2,969 2,950 3,693 4,112
Amortization of intangible
assets 13,104 15,077 15,112 15,155 15,142
Balance Sheet Data (at end
of period):
Total assets $608,718 680,023 668,096 780,843 677,953
Long-term debt, less
current portion 693,159 790,540 1,091,956 1,081,622 1,031,989
Redeemable preferred stock -- -- 96,792 83,851 71,969
Stockholders' deficit (344,110) (420,104) (807,413) (657,090) (607,350)
Working capital deficit (57,453) (67,166) (102,223) (18,320) (18,891)
15
<PAGE>
<FN>
(a) Other expense for the year ended December 31, 1992
includes $6.0 million of costs associated with the Company's withdrawal
in July 1992 of its planned initial public offering and related
recapitalization transactions.
(b) In connection with the refinancing that occurred in 1991,
an $18.6 million extraordinary item - debt restructuring charge was
recorded in the year ended December 31, 1991, consisting of
consent payments to holders of the 13 3/4% Senior Subordinated
Debentures due November 30, 2001 of Dr Pepper (the "Dr Pepper
Subordinated Debentures"), the charge relating to the interest rate
increase on such debt, and the write-off of the unamortized balance
of deferred debt issuance costs related to the credit agreement of
Dr Pepper.
(c) In connection with the 1992 Recapitalization, a $56.9 million
extraordinary item - debt restructuring charge was recorded in
the year ended December 31, 1992, consisting of premiums and fees
in respect of the debt retirements and write-off of the
unamortized balance of deferred debt issuance costs related to
the credit agreement of Seven-Up, the term loans of Dr Pepper,
the 11 1/2% Guaranteed Senior Secured Notes due 1996 of Dr
Pepper, the Dr Pepper Subordinated Debentures, the 12 5/8% Senior
Subordinated Notes due May 15, 1999 of Seven-Up and the 15 1/2%
Senior Subordinated Discount Notes due 1998 of the Holding
Company.
(d) In connection with the Offering, a $14.3 million
extraordinary charge was recorded in 1993 which included (i) a
write-off of a portion of the unamortized balance of deferred
debt issuance costs related to the Credit Agreement borrowings
and the Discount Notes and (ii) the premium related to the
redemption of a portion of the Discount Notes. In addition, a
$1.9 million extraordinary charge was recorded in 1993 reflecting
a write-off of a portion of the unamortized balance of deferred
debt issuance costs related to the Credit Agreement borrowings.
The write-off was the result of repayments of the term loan facility
under the Credit Agreement (the "Term Loan Facility") in advance of
scheduled requirements. These extraordinary items were recorded net of
applicable taxes.
(e) In connection with the retirement of a portion of the
Discount Notes, an extraordinary charge of $11.2 million was
recorded in 1994, net of applicable income taxes. The
extraordinary charge reflects a write-off of a portion of the
unamortized balance of deferred debt issuance costs as well as
the premium paid in excess of the accreted value.
(f) The Company adopted in the fourth quarter of 1992
Statement 109 (as hereinafter defined) relating to accounting for
income taxes and applied the provisions thereof retroactively
effective January 1, 1992.
(g) Income (loss) before extraordinary items per common share
for each of the years ended December 31, 1990, 1991, 1992, 1993
and 1994 is based on the weighted average number of common shares
outstanding after giving retroactive effect to the 1 for 5
reverse stock split effected on June 25, 1992. Except for the
years ended December 31, 1994 and 1993, shares issuable upon
exercise of stock options and deliverable upon the exercise of
outstanding warrants were antidilutive and were excluded from the
calculation.
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1994 COMPARED TO
YEAR ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 increased 8.7% to
$769.0 million compared to $707.4 million for the year ended
December 31, 1993. All of the Company's operating units recorded
net sales increases in 1994 compared to 1993. These sales
increases were primarily the result of volume increases for the
Company's DR PEPPER, Diet DR PEPPER, 7UP and IBC brands over the
comparable period in 1993, as well as price increases on DR
PEPPER, 7UP and certain other products.
Cost of sales for 1994 increased 10.1% to $127.7 million compared
to $116.0 million in 1993. This increase was primarily due to
the increase in concentrate and syrup sales volume. Gross profit
as a percentage of net sales of 83.4% was essentially unchanged
from 1993.
Total operating expenses, which include marketing expense,
general and administrative expense and amortization of intangible
assets, increased by 7.2% to $437.8 million compared to $408.4
million in 1993. The increase was primarily due to increased
marketing expenses in response to improved sales volume. The
Company's general and administrative expenses increased 6.7% to
$32.9 million primarily as the result of higher employee-related
and legal costs. General and administrative expenses as a
percentage of net sales decreased to 4.3% from 4.4% in 1993.
As a result of the above factors, operating profit for the year
ended December 31, 1994 increased 11.2% to $203.6 million
compared to $183.0 million in 1993. Operating profit as a
percentage of net sales increased to 26.5% in 1994 from 25.9% in
1993.
Interest expense for 1994 decreased 6.0% to $80.5 million
compared to $85.6 million in 1993. The decrease was due to the
impact of the Company's deleveraging efforts (primarily the retirement
of a portion of the Discount Notes).
The increase in income tax expense as compared to 1993 is
principally due to the utilization of net operating loss
carryforwards during 1993.
In connection with the retirement of a portion of the Discount
Notes, an extraordinary charge of $11.2 million was recorded in
1994, net of applicable income taxes. The extraordinary charge
reflects a write-off of a portion of the unamortized balance of
deferred debt issuance costs as well as the premium paid in
excess of the accreted value.
In connection with the Offering, a $14.3 million extraordinary
charge was recorded in 1993 which included (i) a write-off of a
portion of the unamortized balance of deferred debt issuance
costs related to the Credit Agreement borrowings and the Discount
Notes and (ii) the premium related to the redemption of a portion
of the Discount Notes. In addition, a $1.9 million extraordinary
charge was recorded in 1993 reflecting a write-off of a portion of
the unamortized balance of deferred debt issuance costs related to the Credit
17
<PAGE>
Agreement borrowings. The write-off was the result of repayments
of the Term Loan Facility in advance of scheduled requirements.
These extraordinary items were recorded net of applicable taxes.
As a result of the above factors, the Company earned $66.5
million of net income in 1994 compared to a $77.9 million of net
income earned in 1993.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1993 COMPARED TO
YEAR ENDED DECEMBER 31, 1992
Net sales for the year ended December 31, 1993 increased 7.4% to
$707.4 million compared to $658.7 million for the year ended
December 31, 1992. All of the Company's operating units recorded
net sales increases in 1993 compared to 1992, except for the
International Division which was unchanged. These sales
increases were primarily the result of volume increases for the
Company's DR PEPPER, Diet DR PEPPER, 7UP and IBC brands over the
comparable period in 1992, as well as price increases on DR
PEPPER, 7UP and certain other products.
Costs of sales for 1993 decreased 8.0% to $116.0 million compared
to $126.0 million in 1992. This decrease was primarily due to a
decrease in sweetener costs somewhat offset by an increase in
concentrate and syrup sales volume. Gross profit as a percentage
of net sales increased from 80.9% in 1992 to 83.6% in 1993.
Total operating expenses, which include marketing expense,
general and administrative expense and amortization of intangible
assets, increased by 9.7% to $408.4 million compared to $372.1
million in 1992. The increase was primarily due to increased
marketing expenses in response to improved sales volume. The
Company's general and administrative expenses increased 12.8% to
$30.8 million primarily as the result of higher legal costs.
Excluding this increase, general and administrative expenses as a
percentage of net sales would have remained at 4.1%.
As a result of the above factors, operating profit for the year
ended December 31, 1993 increased 14.0% to $183.0 million
compared to $160.6 million in 1992. Operating profit as a
percentage of net sales increased to 25.9% in 1993 from 24.4% in
1992.
Interest expense for 1993 decreased 43.1% to $85.6 million
compared to $150.2 million in 1992. The decrease was due to the
consummation of the 1992 Recapitalization and the Offering which
together reduced outstanding borrowings and resulted in lower
interest rates on borrowings.
Other expense for the year ended December 31, 1992 includes $6.0
million in costs associated with the Company's withdrawal of its
planned public offering in July 1992.
Income tax expense of $2.1 million for the year ended December
31, 1993 consists of current Federal tax expense of $1.1 million,
current state tax expense of $4.0 million and a deferred Federal
tax benefit of $3.0 million.
In February 1992, the Financial Accounting Standards Board issued
Statement 109, "Accounting for Income Taxes" ("Statement 109")
which requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability
18
<PAGE>
method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
The Company adopted Statement 109 in the fourth quarter of 1992
and applied the provisions of Statement 109 retroactively to
January 1, 1992. The cumulative effect as of January 1, 1992 of
the change in the method of accounting for income taxes is a
charge to earnings of $74.8 million and has been reported
separately in the 1992 consolidated statement of operations.
Financial statements for periods prior to January 1, 1992 have
not been restated for Statement 109.
Income tax benefit of $182,000 for the year ended December 31,
1992 consists of current state tax expense of $424,000 and a
deferred Federal income tax benefit of $606,000. The deferred
income tax benefit includes a charge in lieu of taxes resulting
from initial recognition of acquired tax benefits of $1.1
million.
In connection with the Offering, a $14.3 million extraordinary
charge was recorded in 1993 which included (i) a write-off of a
portion of the unamortized balance of deferred debt issuance
costs related to the Credit Agreement borrowings and the Discount
Notes and (ii) the premium related to the redemption of a portion
of the Discount Notes. In addition, a $1.9 million extraordinary
charge was recorded in 1993 reflecting a write-off of a portion of
the unamortized balance of deferred debt issuance costs related to
the Credit Agreement borrowings. The write-off was the result of
repayments of the Term Loan Facility in advance of scheduled requirements.
These extraordinary items were recorded net of applicable taxes.
In connection with the 1992 Recapitalization, the Company
recorded an extraordinary charge of $56.9 million consisting of a
write-off of the unamortized balance of deferred debt issuance
costs related to the debt retirements and premiums and fees in
respect of the debt retirements.
As a result of the above factors, the Company earned $77.9
million of net income in 1993 compared to a $140.1 million net
loss incurred in 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, together with borrowings under the revolving
credit facility under the Credit Agreement (the "Revolving Facility"), have
historically been sufficient to fund the Company's working capital requirements,
capital expenditures, principal and interest requirements described below.
19
<PAGE>
The Holding Company conducts its business through DP/7UP and the primary
asset of the Holding Company is the common stock of DP/7UP. The Holding
Company has no material operations of its own. Accordingly, the Holding
Company is dependent on the cash flow of DP/7UP to meet its obligations. The
Holding Company has no material obligations other than those under the
Discount Notes. Accordingly, the Holding Company is not expected to have any
material need for cash until interest on the Discount Notes becomes payable
in cash on May 1, 1998. The Holding Company will be required to make sinking
fund payments equal to 25% of the then outstanding principal amount of the
Discount Notes in each of 2000 and 2001. The Discount Notes will mature in
2002. The Credit Agreement imposed significant restrictions on the payment
of dividends and the making of loans by DP/7UP to the Holding Company. The
Credit Agreement did, however, allow DP/7UP to pay dividends to the Holding
Company in an amount necessary to make cash interest payments on the Discount
Notes, provided that such interest payments were permitted to be made at such
time in accordance with the subordination provisions relating to the Discount
Notes and so long as no payment default or bankruptcy default then existed
under the Credit Agreement with respect to the Holding Company or DP/7UP.
The indenture governing the Discount Notes also imposes limits on the payment
of dividends by the Holding Company.
The operations of DP/7UP do not require significant outlays for capital
expenditures, and its working capital requirements have historically been
funded with internally generated funds. Marketing expenditures have
historically been, and are expected to remain, the principal recurring use of
funds for the foreseeable future. Such expenditures are, to an extent,
controllable by management and are generally based on a percentage of unit
sales volume. DP/7UP's other principal use of funds in the future will be
the payment of dividends to the Holding Company for purposes of making
principal and interest payments on the Discount Notes.
As of December 31, 1994, DP/7UP was required to repay the principal of $440.0
million under the Term Loan Facility as follows: $100.0 million in 1995,
$110.0 million in 1996, and $115.0 million in each of 1997 and 1998. The
Revolving Facility includes an amount for letters of credit in an aggregate
face amount of up to $15.0 million. At December 31, 1994, the outstanding
balance of revolving loans and the aggregate face amount of letters of credit
issued under the Revolving Facility were $101.0 million and $0.2 million,
respectively. As noted below, the Term Loan Facility and Revolving Facility
under the Credit Agreement were repaid in full on March 6, 1995 and the
Credit Agreement was terminated.
The Company's former obligations under the Credit Agreement bore interest at
floating rates making the Company sensitive to changes in prevailing interest
rates. Accordingly, in order to minimize the effect of significant changes
in prevailing interest rates, and as permitted by the Credit Agreement, the
Company has from time to time entered into interest rate swap and interest
rate cap agreements. At December 31, 1994, the Company was a counterparty to
a swap expiring December 1, 1995, based on six- month LIBOR with a notional
amount of $150 million. Interest rate cap agreements, based on six-month
LIBOR capped at 6% with a total notional amount of $250 million, cover all or
a portion of the period from February 1, 1995 through February 1, 1996.
Premiums for these agreements accrue to interest expense over the life of
each agreement. Any interest rate differentials to be received or paid are
recognized as adjustments to interest expense. The net effect on interest
expense from interest rate instruments was insignificant for the years ended
December 31, 1994 and 1993. Market risk relating to financial instruments is
evaluated periodically based on quotes from financial institutions.
20
<PAGE>
The Company had working capital deficits of $57.5 million at December 31,
1994 and $67.2 million at December 31, 1993. The Company generally operates
with a working capital deficit due to its low inventory investment and
because it has a significant amount of accrued marketing expenses in current
liabilities. The deficit at December 31, 1994 was improved from the December
31, 1993 deficit due to the net increase in working capital components as a
result of the timing of cash receipts and disbursements and the seasonal
nature of the business. As a result of the repayment of the Term Loan
Facility and Revolving Facility on March 6, 1995, such deficits have been
eliminated.
Capital expenditures totaled $2.5 million in 1994 and $3.8 million in 1993.
The Credit Agreement contained numerous financial and operating covenants and
prohibitions that imposed limitations on the Company's liquidity, including
the satisfaction of certain financial ratios and limitations on the
incurrence of additional indebtedness. Through December 31, 1994, the
Company had satisfied all required financial ratios. The indenture governing
the Discount Notes also contains covenants that impose limitations on the
Company's liquidity, including a limitation on the incurrence of additional
indebtedness. The ability of the Company to meet its debt service
requirements and to comply with the financial covenants in the indenture will
be dependent upon future performance, which is subject to financial,
economic, competitive and other factors affecting the Holding Company and
DP/7UP, many of which are beyond their control.
As a result of the Merger, Cadbury owns approximately 98.7% of the
outstanding Common Stock of the Company and controls the operations of the
Company. The Company is thus able to access the resources of Cadbury in
addition to cash provided by operations to fund its cash requirements. The
outstanding balances of the Term Loan Facility and the Revolving Facility
were repaid with cash provided by Cadbury and the Credit Agreement was
terminated, effective as of March 6, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, "Index to Consolidated Financial Statements and
Schedules", included herein, for information required under Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the registrant's accountants on
accounting or financial disclosure.
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for this item is incorporated herein by reference to
the Company's Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the
Holding Company's 1995 Annual Meeting of Shareholders.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information for this item is incorporated herein by reference to
the Company's Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the
Holding Company's 1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information for this item is incorporated herein by reference to
the Company's Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the
Holding Company's 1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this item is incorporated herein by reference to
the Company's Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the
Holding Company's 1995 Annual Meeting of Shareholders.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
See "Index to Financial Statements and Schedules" appearing
after the signature pages hereof.
2. Financial Statement Schedules
See "Index to Financial Statements and Schedules" appearing
after the signature pages hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
1994.
(c) Exhibits
22
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 - Agreement and Plan of Merger among Cadbury Schweppes plc, DP/SU
Acquisition Inc. and Dr Pepper/Seven-Up Companies, Inc., dated as
of January 25, 1995 (8)
3.1 - Amended and Restated Certificate of Incorporation of the Registrant,
as amended. (5)
3.2 - Form of Amended and Restated Bylaws of the Registrant. (5)
3.3 - Rights Agreement between Dr Pepper/Seven-Up Companies, Inc. and
Bank One Texas, N.A., as Rights Agent, dated September 1, 1993
(the "Rights Agreement"). (9)
3.4 - First Amendment to the Rights Agreement dated January 25, 1995. (10)
10.6 - Common Stock Registration Rights Agreement, dated as of May 19,
1988, by and among Hicks & Haas Holdings, Ltd., DLJ Capital
Corporation, Shearson Lehman Hutton Inc., Shearson Lehman Brothers
Capital Partners I, Prudential-Bache Interfunding Inc., Prudential-
Bache Capital Partners I, L.P., Citicorp Capital Investors Ltd.,
John R. Albers, Ira M. Rosenstein, The John L. Kemmerer, Jr. Trust
Dated 6/24/57, Cadbury Schweppes Inc., Bankers Trust Company and
Dr Pepper/Seven-Up Companies, Inc. (1)
10.6.1 - Amendment to Common Stock Registration Rights Agreement, amending
the Common Stock Registration Rights Agreement, dated as of May 19,
1988. (5)
10.6.2 - Form of Second Amendment to Common Stock Registration Rights
Agreement, amending the Common Stock Registration Rights Agreement,
dated as of May 19, 1988. (5)
10.13 - Commercial Lease, dated as of August 20, 1987, among The Seven-Up
Company, Dr Pepper Company and Walnut Glen Towers, Ltd. (1)
10.14 - Dr Pepper Company Profit Sharing Plan, as amended, dated as of
January 1, 1987. (1)
10.15 - Restated Pension Plan of Dr Pepper/Seven-Up Corporation. (1)
10.16 - Supplemental Pension Plan of Dr Pepper/Seven-Up Corporation. (1)
10.17 - Supplemental Disability Plan of Dr Pepper/Seven-Up Corporation. (2)
10.18 - Supplemental Death Benefit Plan of Dr Pepper/Seven-Up
Corporation. (2)
10.21 - Executive Severance Agreement for John R. Albers dated August 27,
1991. (3)
10.21.1 - Amendment to Executive Severance Agreement for John R. Albers dated
February 23, 1995. (11)
10.22 - Executive Severance Agreement for Ira M. Rosenstein dated August
27, 1991. (3)
10.22.1 - Amendment to Executive Severance Agreement for Ira M. Rosenstein
dated February 23, 1995. (11)
10.23 - Letter Agreement dated as of November 9, 1989 for Charles P.
Grier. (3)
10.24 - Executive Severance Agreement dated as of August 27, 1991 for
True H. Knowles. (3)
10.25 - Executive Severance Agreement dated as of April 8, 1992 for Francis
I. Mullin, III. (4)
23
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.31 - Credit Agreement (including exhibits thereto) among The Seven-Up
Company and Dr Pepper Company (and their successor by merger Dr
Pepper/Seven-Up Corporation), Dr Pepper/Seven-Up Companies, Inc. and
Bankers Trust Company, Barclays Bank PLC, Canadian Imperial Bank of
Commerce, Atlanta Agency, NationsBank of North Carolina, N.A., The
Chase Manhattan Bank, N.A., and The First National Bank of
Chicago. (4)
10.31.1 - First amendment, dated as of October 26, 1992, among Dr Pepper/
Seven-Up Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (6)
10.31.2 - Second amendment, dated as of November 5, 1992, among Dr Pepper/
Seven-Up Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (6)
10.31.3 - Third amendment, dated as of February 17, 1993, among Dr Pepper/
SevenUp Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (6)
10.31.4 - Fourth amendment, dated as of March 4, 1993, among Dr Pepper/
Seven-Up Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (6)
10.31.5 - Fifth amendment, (including exhibits thereto) dated as of December
28, 1993, among Dr Pepper/Seven-Up Corporation, Dr Pepper/Seven-Up
Companies, Inc. and certain banks. (6)
10.31.6 - Sixth amendment, dated as of June 28, 1994, among Dr Pepper/
Seven-Up Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (7)
10.32 - Dr Pepper/Seven-Up Companies, Inc. Amended and Restated 1988 Stock
Option Plan. (4)
10.33 - Dr Pepper/Seven-Up Companies, Inc. Amended and Restated 1988 Non-
Qualified Stock Option Plan. (4)
10.34 - Form of Tax Sharing Agreement, dated as of January 1, 1992, between
Dr Pepper/Seven-Up Companies, Inc. and Dr Pepper/Seven-Up
Corporation. (4)
10.35 - Indenture, dated as of October 28, 1992, between Dr Pepper/Seven-Up
Companies, Inc. and Bank One, Texas N.A., as trustee. (4)
10.36 - Dr Pepper/Seven-Up Companies, Inc. 1993 Stock Ownership Plan. (5)
10.37 - Dr Pepper/Seven-Up Companies, Inc. Employee Stock Purchase Plan. (5)
10.38 - Dr Pepper/Seven-Up Companies, Inc. Deferred Compensation Plan for
Non-Employee Directors. (5)
24
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.39 - Form of Dr Pepper/Seven-Up Companies, Inc. 1994 Performance Award
Plan. (11)
10.40 - Dr Pepper/Seven-Up Companies, Inc. Non-Qualified Stock Option Plan
for Non-Employee Directors. (5)
10.41 - Employment Agreement, effective as of January 1, 1993, between
Dr Pepper/Seven-Up Companies, Inc. and John R. Albers. (6)
10.42 - Employment Agreement, effective as of January 1, 1993, between
Dr Pepper/Seven-Up Companies, Inc. and Ira M. Rosenstein. (6)
22 - Subsidiaries of Registrant. (11)
24.1 - Consent of KPMG Peat Marwick LLP, independent certified public
accountants. (11)
27 - Financial Data Schedule (11)
99 - Portion of Registrant's Solicitation/Recommendation Statement on
Schedule 14D-9 dated February 1, 1995 and amendments thereto setting
forth information with respect to certain shareholder litigation.
(1) Incorporated herein by reference to Registration Statement No. 33-23174
of the Company.
(2) Incorporated herein by reference to Registration Statement No. 33-9428
of Dr Pepper Company.
(3) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991.
(4) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-47397).
(5) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-55262).
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
(8) Incorporated by reference to the Registrant's Solicitation/
Recommendation Statement on Schedule 14D-9 dated February 1, 1995.
(9) Incorporated by reference to the Registrant's Form 8-A dated September
1, 1993.
(10) Incorporated by reference to amendment No. 1 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 dated February
13, 1995.
(11) Filed herewith.
25
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DR PEPPER/SEVEN-UP COMPANIES, INC.
Date: March 30, 1995 By: JOHN R. ALBERS
----------------------------
John R. Albers
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- -----
JOHN R. ALBERS President and Chief Executive March 30, 1995
----------------- Officer (Principal Executive
John R. Albers Officer of the Registrant)
IRA M. ROSENSTEIN Executive Vice President and March 30, 1995
----------------- Chief Financial Officer (Principal
Ira M. Rosenstein Financial Officer of the Registrant)
MICHAEL R. BUITER Vice President-Finance and Treasurer March 30, 1995
----------------- (Principal Accounting Officer of
Michael R. Buiter the Registrant)
JOHN F. BROCK Director March 30, 1995
-----------------
John F. Brock
HENRY A. UDOW Director March 30, 1995
-----------------
Henry A. Udow
DAVID A. GERICS Director March 30, 1995
-----------------
David A. Gerics
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Dr Pepper/Seven-Up Companies, Inc.:
Independent Auditors' Report F-2
Consolidated Balance Sheets -- December 31, 1994 and 1993 F-3
Consolidated Statements of Operations -- Three years ended
December 31, 1994 F-4
Consolidated Statements of Stockholders' Deficit -- Three years
ended December 31, 1994 F-5
Consolidated Statements of Cash Flows -- Three years ended
December 31, 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedules:
I -- Condensed Financial Information F-18
II -- Valuation and Qualifying Accounts F-22
All other schedules are omitted as the required information is inapplicable or
presented in the consolidated financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dr Pepper/Seven-Up Companies, Inc.:
We have audited the accompanying consolidated balance sheets of
Dr Pepper/Seven-Up Companies, Inc. and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules
as listed in the accompanying index. These consolidated financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dr
Pepper/Seven-Up Companies, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
As discussed in note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992.
KPMG Peat Marwick LLP
February 10, 1995
Dallas, Texas
F-2
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
ASSETS (NOTE 3)
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts of
$1,668 in 1994 and $1,737 in 1993 $ 80,995 70,255
Inventories 16,648 14,550
Prepaid advertising 18,720 16,872
Deferred income taxes (note 4) 23,532 24,175
Other current assets 4,172 1,608
-------- -------
Total current assets 144,067 127,460
-------- -------
Property, plant and equipment, net (note 2) 18,607 19,012
Intangible assets (note 10):
Franchises 407,069 459,988
Goodwill, formulas, trademarks and other 131,248 142,872
-------- -------
538,317 602,860
Less accumulated amortization 124,538 111,434
-------- -------
Total intangible assets, net 413,779 491,426
-------- -------
Deferred debt issuance costs, less accumulated amortization of
$16,582 in 1994 and $8,711 in 1993 22,167 31,313
Other assets 10,098 10,812
-------- -------
Total assets $608,718 680,023
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 19,999 25,060
Accrued marketing expenses 60,730 67,026
Other accrued expenses 20,724 17,266
Current portion of long-term debt (note 3) 100,067 85,274
-------- -------
Total current liabilities 201,520 194,626
-------- -------
Long-term debt, less current portion (note 3) 693,159 790,540
Deferred credits and other 15,178 28,805
Deferred income taxes (note 4) 42,971 86,156
Stockholders' deficit (notes 3 and 5):
Common stock, $.01 par value, authorized 145,000,000 shares,
issued 61,771,287 shares in 1994 and 60,796,377 shares
in 1993 617 608
Additional paid-in capital 416,203 406,728
Accumulated deficit (761,153) (827,672)
Foreign currency translation adjustment 223 232
Less treasury shares (6,451 in 1994 and 148,152 in 1993),
at cost -- --
-------- -------
Total stockholders' deficit (344,110) (420,104)
Commitments and contingencies (notes 7 and 10)
-------- -------
Total liabilities and stockholders' deficit $608,718 680,023
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Net sales (note 8) $769,015 707,378 658,718
Cost of sales 127,650 115,981 126,002
-------- ------- -------
Gross profit 641,365 591,397 532,716
-------- ------- -------
Operating expenses:
Marketing 391,806 362,484 329,706
General and administrative 32,889 30,816 27,312
Amortization of intangible assets 13,104 15,077 15,112
-------- ------- -------
Total operating expenses 437,799 408,377 372,130
-------- ------- -------
Operating profit 203,566 183,020 160,586
-------- ------- -------
Other income (expense):
Interest expense (80,452) (85,560) (150,245)
Preferred stock dividends of subsidiaries (1,308) (1,744) (17,538)
Recapitalization charge (note 9) -- -- (6,026)
Other, net 484 495 4,627
-------- ------- --------
Total other income (expense) (81,276) (86,809) (169,182)
-------- ------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change 122,290 96,211 (8,596)
Income tax expense (benefit) (note 4) 44,591 2,087 (182)
-------- ------- --------
Income (loss) before extraordinary item
and cumulative effect of accounting change 77,699 94,124 (8,414)
-------- ------- --------
Extraordinary item -- extinguishment of debt, less
applicable income taxes (notes 3, 4 and 9) 11,180 16,199 56,934
Cumulative effect of accounting change (note 4) -- -- 74,800
-------- ------- --------
Net income (loss) 66,519 77,925 (140,148)
Preferred stock dividend requirements -- -- 12,941
-------- ------- --------
Net income (loss) attributable to
outstanding common stock $ 66,519 77,925 (153,089)
======== ======= ========
Income (loss) per common share and share equivalent:
Income (loss) before extraordinary item and
cumulative effect of accounting change $1.13 1.46 (.60)
Extraordinary item (.17) (.25) (1.60)
Cumulative effect of accounting change -- -- (2.11)
----- ----- -----
Net income (loss) $0.96 1.21 (4.31)
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT ADJUSTMENT SHARES DEFICIT
---------- ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 35,461,339 $385 93,638 (750,916) 193 (390) (657,090)
Stock sold to employees 112,740 - 292 - - 390 682
Senior Preferred Stock dividends - - - (12,941) - - (12,941)
Reclassification of common stock
warrants - - 11,085 - - - 11,085
Redemption of subsidiary's preferred
stock - - (11,128) - - - (11,128)
Other (25) - 2,125 - 2 - 2,127
Net loss - - - (140,148) - - (140,148)
---------- ---- ------- -------- --- --- ---------
Balance, December 31, 1992 35,574,054 385 96,012 (904,005) 195 - (807,413)
Issuance of common stock (note 9) 21,578,313 216 305,122 - - - 305,338
Exercise of employee stock options,
including tax benefits 607,638 6 4,944 - - - 4,950
Exercise of outstanding warrants 2,807,895 - - - - - -
Other 80,325 1 650 (1,592) 37 - (904)
Net income - - - 77,925 - - 77,925
---------- ---- ------- -------- --- ---- --------
Balance, December 31, 1993 60,648,225 608 406,728 (827,672) 232 - (420,104)
Exercise of employee stock options,
options, including tax benefits 974,717 9 10,745 - - - 10,754
Exercise of outstanding warrants 141,719 - - - - - -
Redemption of subsidiary's preferred
stock - - (1,909) - - - (1,909)
Other 175 - 639 - (9) - 630
Net income - - - 66,519 - - 66,519
---------- ---- ------- -------- --- --- --------
Balance, December 31, 1994 61,764,836 $617 416,203 (761,153) 223 - (344,110)
========== ==== ======= ======== === === ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 66,519 77,925 (140,148)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization of intangibles,
debt discounts and deferred debt issuance
costs 53,973 59,634 90,289
Debt restructuring charge 2,039 8,844 24,664
Cumulative effect of accounting change - - 74,800
Preferred stock dividends of subsidiary - - 11,119
Deferred income taxes 23,501 (3,059) (606)
Other 7,207 1,621 1,332
Changes in assets and liabilities:
Accounts receivable (10,740) (12,988) (6,565)
Inventories (2,098) (1,865) (466)
Prepaid advertising and other assets (3,246) 1,117 (7,068)
Accounts payable and accrued expenses (8,137) (7,720) 7,823
--------- ---------- ----------
Net cash provided by operating activities 129,018 123,509 55,174
--------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (2,546) (3,754) (1,861)
Investment in joint venture (456) - -
Sales of marketable securities with maturity
less than three months, net - - 31,166
Purchases of marketable securities - - (312,108)
Sales of marketable securities - - 366,733
Other - - (2,000)
--------- ---------- ----------
Net cash provided by (used in)
investing activities (3,002) (3,754) 81,930
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 275,000 831,000 1,266,001
Payments on long-term debt (387,662) (1,156,960) (1,269,407)
Proceeds from sale of common stock - 305,338 -
Repurchase of preferred stock (13,902) (98,383) (120,744)
Payments of refinancing costs (763) (4,381) (53,149)
Increase (decrease) in cash overdraft (1,262) 2,442 5,181
Other 2,573 1,189 469
--------- ---------- ----------
Net cash used in financing activities (126,016) (119,755) (171,649)
--------- ---------- ----------
Net decrease in cash and cash equivalents - - (34,545)
Cash and cash equivalents at beginning of year - - 34,545
--------- ---------- ----------
Cash and cash equivalents at end of year $ - - -
======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Dr Pepper/Seven-Up Companies, Inc. and subsidiaries ("Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. A summary of
inventories at December 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Finished products $ 6,449 5,362
Raw materials and supplies 10,199 9,188
------- ------
$16,648 14,550
======= ======
</TABLE>
(c) MARKETING AND ADVERTISING COSTS
Marketing costs include costs of advertising, marketing and
promotional programs. Prepaid advertising consists of various
marketing, media and advertising prepayments, materials in
inventory and production costs of future media advertising;
these assets are expensed in the year used. Marketing costs,
other than prepayments, are expensed in the year incurred.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation
is computed by the straight-line method over the estimated useful
lives ranging from 3 to 10 years. Maintenance and repairs are
charged to operations as incurred and expenditures for major
renewals and improvements are capitalized.
(e) INTANGIBLE ASSETS
Franchises, goodwill, formulas, trademarks and other intangible
assets are being amortized over 40 years on a straight-line basis.
The Company continually reevaluates the recoverability of the
carrying amount of these intangible assets based on projected
undiscounted operating cash flows.
(f) DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are amortized using the effective
interest method over the life of the debt issue to which they
relate.
F-7 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) DERIVATIVES
Premiums paid for purchased interest rate cap agreements are
amortized to interest expense over the terms of the caps.
Amounts receivable under cap agreements are accrued as a reduction
of interest expense.
(h) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(i) INCOME (LOSS) PER COMMON SHARE AND SHARE EQUIVALENT
Income (loss) per common share and share equivalent is based on
the weighted average number of common shares and share equivalents
outstanding during the year (67,005,000 in 1994, 64,621,000 in
1993 and 35,533,000 in 1992). Income (loss) per common share and
share equivalent was the same for primary and fully diluted per
share amounts. Income per common share and share equivalent for
1994 was determined after deducting $1,909,000 for the premium
paid by the Company in 1994 to redeem the remaining outstanding
preferred stock of a subsidiary.
(j) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
During 1994, 1993 and 1992, the Company paid interest
of $37,874,000, $43,926,000 and $85,203,000, respectively, and
income taxes of $9,636,000, $3,538,000 and $1,202,000,
respectively.
(2) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and accumulated depreciation
at December 31, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Land $ 1,106 1,106
Buildings and improvements 9,224 9,151
Machinery, equipment and furniture 41,280 38,903
-------- -------
51,610 49,160
Accumulated depreciation (33,003) (30,148)
-------- -------
$ 18,607 19,012
======== =======
</TABLE>
Depreciation expense was $2,925,000 in 1994, $2,969,000 in 1993 and
$2,950,000 in 1992.
F-8 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Credit Agreement $541,000 574,000
Discount Notes 252,101 301,427
Other notes 125 387
-------- -------
793,226 875,814
Less current portion of long-term debt 100,067 85,274
-------- -------
$693,159 790,540
======== =======
</TABLE>
(a) CREDIT AGREEMENT
The Company's Credit Agreement provides for $525,000,000 of
borrowings available under a Term Loan Facility and
$150,000,000 of borrowings available under a Revolving
Facility from a group of banks. Outstanding borrowings under
the Term Loan Facility and the Revolving Facility bear
interest at the lead bank's prime rate (8.25% at December 31,
1994) plus 1/4% per annum or the lead banks' average
Eurodollar Rate plus 3/4% per annum. The Term Loan Facility
requires semiannual principal payments to maturity on
December 31, 1998. The Revolving Facility will mature on the
earlier to occur of December 31, 1998 or the date on which
there are no amounts outstanding under the Term Loan
Facility. The Company must pay an annual commitment fee of
3/8% on the unused portion of the Revolving Facility.
Borrowings under the Credit Agreement are principally secured
by the Company's assets, including franchise contracts
relating to bottling arrangements.
The Credit Agreement contains certain restrictive
covenants which require the Company, among other things,
to satisfy certain financial ratios and restricts
investments in and loans to affiliates, capital
expenditures, additional debt and payment of dividends,
as defined.
In 1994, the Company entered into interest rate cap
agreements to reduce the potential impact of increases
in interest rates on borrowings under the Credit
Agreement. As of December 31, 1994, the Company was a
party to interest rate cap agreements with a total
notional amount of $250,000,000. The terms of the
agreements cover all or a portion of the period
February 1, 1995 through February 1, 1996 and provide
for a LIBOR-based cap rate of 6%.
(b) DISCOUNT NOTES
The 11 1/2% Senior Subordinated Discount Notes (the
"Discount Notes") had a face amount of $345,055,000 at
December 31, 1994, bear interest at a rate of 11.5% per
annum and are redeemable at the option of the Company at
redemption prices declining annually from 104.3125% on
November 1, 1997 to par on or after November 1, 2000.
Interest is payable semiannually on the Discount Notes
beginning May 1, 1998. A mandatory sinking fund will
retire 25% of the original principal amount in each of
the years 2000 and 2001, or 50% of the issue prior to
maturity.
F-9 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Discount Notes mature on November 1, 2002
and are subordinate to all outstanding borrowings under
the Credit Agreement. The indenture governing the
Discount Notes contains covenants that impose
limitations on the Company's liquidity, including a
limitation on the incurrence of additional indebtedness.
During 1994, the Company retired a portion of the
Discount Notes through open market purchases. In
connection with these transactions, the Company
recognized an extraordinary charge of $11,180,000 resulting
from the write-off of deferred debt issuance costs and
the payment of premiums on the redemption of the
Discount Notes.
Aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 1994 follows: $100,067,000
in 1995; $110,055,000 in 1996; $115,003,000 in 1997,
$216,000,000 in 1998 and none in 1999.
The following table presents the carrying amounts and
estimated fair values of the Company's interest rate cap
agreements, Credit Agreement and Discount Notes as of
December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1993 1994
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Assets - other current assets
(interest rate cap agreements) $ 2,936 3,737 -- --
Liabilities:
Credit Agreement 541,000 541,000 574,000 574,000
Discount Notes 252,101 272,593 301,427 357,651
</TABLE>
The estimated fair values of the interest rate cap
agreements are based on dealer quotes. The carrying amount
of the Credit Agreement is assumed to approximate the
estimated fair value since the borrowings bear interest at
current market rates. The estimated fair value of the
Discount Notes is based on the quoted market price for the
issue.
F-10 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) INCOME TAXES
Total income tax expense (benefit) for the years ended
December 31, 1994, 1993 and 1992 was allocated as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Income (loss) before extraordinary item and
cumulative effect of accounting change $44,591 2,087 (182)
Extraordinary item (6,020) (731) -
Goodwill - initial recognition of acquired
tax benefits - - (1,148)
Additional paid-in capital - compensation
expense recognized for tax purposes (7,430) (3,789) (818)
------- ------ ------
$31,141 (2,433) (2,148)
======= ====== ======
</TABLE>
Income tax expense (benefit) attributable to income (loss)
before income taxes, extraordinary item and cumulative effect of
accounting change for the years ended December 31, 1994,
1993 and 1992 consists of (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ----
<S> <C> <C> <C>
Current:
Federal $16,760 1,147 -
State 4,330 3,999 424
Deferred 23,501 (3,059) (606)
------- ------ ----
$44,591 2,087 (182)
======= ====== ====
</TABLE>
Deferred income tax benefit for the year ended December 31,
1993 includes a charge of $2,046,000 for adjustments to
deferred tax assets and liabilities for the increase in the
U.S. federal income tax rate.
Income tax expense (benefit) for the years ended December
31, 1994, 1993 and 1992 differed from the amount computed by
applying the U.S. federal income tax rate of 35% in 1994 and
1993 and 34% in 1992 to income (loss) before income taxes,
extraordinary item and cumulative effect of accounting
change as a result of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $42,802 33,674 (2,922)
Increase (reduction) in income taxes resulting
from:
Benefit of net operating loss carryforwards - (24,253) -
Reduction in valuation allowance (3,850) (8,623) -
State income taxes, net of federal income
tax benefit 2,815 2,599 280
Other, net 2,824 (1,310) 2,460
------- ------- ------
$44,591 2,087 (182)
======= ======= ======
</TABLE>
F-11 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give
rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31,
1994 and 1993 are presented below (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 64,176 94,426
Trademarks 10,874 7,276
Other 7,190 7,750
-------- -------
Total gross deferred tax assets 82,240 109,452
Less valuation allowance (34,288) (70,323)
-------- -------
Net deferred tax assets 47,952 39,129
-------- -------
Deferred tax liabilities:
Franchises and other intangible assets 63,892 97,212
Property and equipment 2,517 2,704
Other 982 1,194
-------- -------
Total gross deferred tax liabilities 67,391 101,110
-------- -------
Net deferred tax liability $ 19,439 61,981
======== =======
</TABLE>
The valuation allowance for deferred tax assets as of
January 1, 1993 was $93,313,000. The net change in the
total valuation allowance for the years ended December 31,
1994 and 1993 was a decrease of $36,035,000 and a decrease
of $22,990,000, respectively.
As of December 31, 1994, the Company and its subsidiaries
have approximately $183,000,000 of federal income tax loss
carryforwards (see note 10) which expire in years 2001
through 2007. The Company is subject to an annual
limitation of approximately $60,000,000 for utilizing its
federal income tax loss carryforwards.
If the Company subsequently were to recognize tax benefits
related to the December 31, 1994 valuation allowance for
deferred tax assets, such benefits would be allocated to
intangible assets (approximately $6,264,000), and income tax
benefit, which would be reported in the consolidated
statement of operations (approximately $28,024,000).
The Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (Statement
109) in the fourth quarter of 1992 and applied the
provisions of Statement 109 retroactively to January 1,
1992. The cumulative effect of the change in accounting for
income taxes of $74,800,000 was determined as of January 1,
1992 and is reported separately in the 1992 consolidated
statement of operations.
(5) STOCKHOLDERS' DEFICIT
(a) SHAREHOLDER RIGHTS PLAN
In September 1993, the Company's Board of Directors
adopted a Shareholder Rights Plan pursuant to which
purchase rights were issued to holders of its common
stock at the rate of one right for each share of common
stock. The rights will trade with the
F-12 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's common stock until exercisable. The rights become
exercisable only at the time a person or group acquires, or
commences a public tender offer for a defined percentage of the
Company's common stock. Once a right becomes exercisable, the
holders of the rights (other than the acquiring person or
group) may purchase the Company's common stock at 50% of its
then market price. The rights expire on September 13, 2003,
unless earlier redeemed by the Company at a price of $.01 per
right.
(b) EMPLOYEE INCENTIVE PLANS
The Company sponsors certain employee incentive plans under which
stock options and stock awards may be granted to key officers and
salaried employees of the Company. Options granted under the
plans are exercisable at such times and in such amounts as
determined by a committee selected by the Board of Directors of
the Company. No options granted under the plans are exercisable
more than ten years after the date of grant. At December 31, 1994,
2,217,609 shares were available for grant under the plans. Further
information relating to options is as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Outstanding at January 1 7,648 7,078 6,926
Granted 522 1,204 229
Exercised (975) (608) -
Cancelled (109) (26) (77)
----- ----- -----
Outstanding at December 31 7,086 7,648 7,078
===== ===== =====
Exercisable at December 31 5,843 4,641 3,034
===== ===== =====
Option price per share:
Exercised $.05-20.75 $.05-10.17
========== ========== ==========
Unexercised at December 31 $.05-25.38 $.05-20.75 $.05-10.17
========== ========== ==========
</TABLE>
(6) PENSION BENEFITS
The Company has defined benefit pension plans covering substantially all
of its employees. The benefits are primarily based on years of service
and the employees' compensation during the last years of employment.
Pension costs are funded in amounts not less than minimum statutory
funding requirements nor more than the maximum amount that can be
deducted for federal income tax purposes. The Company also has a
nonqualified unfunded defined benefit plan covering certain executive
employees. The following table sets forth the plans' funded status and
amounts recognized at December 31, 1994 and 1993 (in thousands):
F-13 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of
$36,544 in 1994 and $35,048 in 1993 $ 40,180 37,902
======== =======
Projected benefit obligation for services
rendered to date 55,589 52,646
Plan assets at fair value, primarily listed
stocks and United States government securities 28,973 26,753
-------- -------
Projected benefit obligation in excess of plan
assets 26,616 25,893
Unrecognized net asset at adoption 575 616
Unrecognized prior service costs (3,306) (3,202)
Unrecognized net loss (13,844) (14,853)
Adjustment required to recognize minimum
liability 1,167 2,695
-------- -------
Accrued pension liability $ 11,208 11,149
======== =======
</TABLE>
Net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ -----
<S> <C> <C> <C>
Service cost $ 2,760 2,375 1,897
Interest cost 4,277 3,676 3,082
Actual return on assets 535 (1,799) (812)
Net amortization and deferral (1,552) 1,053 101
------- ------ -----
Net pension cost $ 6,020 5,305 4,268
======= ====== =====
</TABLE>
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 8.75% 7.9 8.25
Rate of increase in future compensation
levels 5.5 5.5 5.5-8.0
Expected long-term rate of return on
assets 8.5% 8.5 8.5
=== === ===
</TABLE>
(7) LEASE COMMITMENTS
The Company has operating leases principally for office space, automobiles
and computer equipment. Rent expense on operating leases was $6,489,000
in 1994, $6,490,000 in 1993 and $6,479,000 in 1992. The future minimum
rentals under noncancellable operating leases in effect as of December 31,
1994 were $7,023,000 in 1995; $5,995,000 in 1996; $5,067,000 in 1997 and
$2,661,000 in 1998.
F-14 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) RELATED PARTY AND MAJOR CUSTOMER TRANSACTIONS
In October 1993, Cadbury Schweppes plc ("Cadbury") increased its ownership
in the Company to approximately 26% of the outstanding common stock. The
Company currently performs contract manufacturing for an affiliate of
Cadbury. For the years 1994, 1993 and 1992, the Company received
$2,104,000, $2,025,000 and $1,724,000, respectively, for such contract
manufacturing services.
A director of the Company also serves as a director of a company engaged
in the business of bottling DR PEPPER brand and 7UP brand beverages. For
the years 1994, 1993 and 1992, the Company had sales to the bottling
company of $62,200,000, $56,300,000 and $52,500,000.
Sales to PepsiCo, Inc. owned bottling operations accounted for 13.8%,
13.5% and 12.3% of consolidated net sales in 1994, 1993 and 1992,
respectively.
(9) RECAPITALIZATION TRANSACTIONS
During 1993 and 1992, the Company was involved in certain significant
recapitalization transactions that are described in more detail as
follows:
(a) 1993 PUBLIC OFFERING
During 1993, the Company completed an initial public offering of
21,578,313 shares of its common stock resulting in net proceeds to
the Company of approximately $305,400,000. The net proceeds were
used to redeem $115,500,000 of the accreted balance of the Discount
Notes, reduce borrowings of $82,500,000 under the Credit Agreement
and redeem all of the Redeemable Senior Preferred Stock. In
connection with this transaction, the Company recognized an
extraordinary charge of $14,300,000 resulting from the write-off
of deferred debt issuance costs and the payment of premiums on the
redemption of the Discount Notes.
(b) 1992 RECAPITALIZATION
In 1992, the Company completed a recapitalization transaction which
included the issuance of $656,509,000 principal amount (gross
proceeds of $375,001,000) of the Discount Notes and borrowings of
$816,000,000 under the Credit Agreement. The proceeds from the
borrowings and approximately $169,900,000 of cash on hand were used
to effect the retirement of certain indebtedness and preferred
stock.
In connection with this transaction, the Company recognized an
extraordinary charge of $56,934,000 for payment of call premiums
and consents to former bondholders and the write-off of the
unamortized balance of deferred debt issuance costs.
F-15 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) OTHER TRANSACTIONS
During the second quarter of 1992, the Company pursued a recapital-
ization plan which included an initial public offering of the
Company's common stock. On July 1, 1992, the Company announced that
it had withdrawn its offering and a charge of $6,026,000 was
recorded in 1992 to reflect the costs associated with this
recapitalization effort.
(10) CONTINGENCIES
(a) FORMER HEADQUARTERS
The Company is a defendant in an action alleging that the Company
breached an oral agreement to lease space in a new office building
in connection with the Company's move of its corporate headquarters.
The plaintiff also alleges that the Company fraudulently misrepre-
sented the existence of asbestos in the Company's former corporate
headquarters building. The plaintiff claims to have suffered over
$31.5 million in actual damages with punitive damages in excess of
$50 million.
Management of the Company intends to vigorously contest the
plaintiff's allegations and believes that the resolution of these
matters will not have a material adverse effect on the Company's
financial condition or operating results.
(b) INTERNAL REVENUE SERVICE MATTER
The Internal Revenue Service has completed its examination of
federal income tax returns of Dr Pepper Company ("Dr Pepper") and
The Seven-Up Company ("Seven-Up"), predecessors in interest to
DP/7UP, for the periods ended December 31, 1986, December 31, 1987
and May 19, 1988, and of the Company for the period ended
December 31, 1988. The Company was notified of proposed IRS
adjustments disallowing certain deductions, including substantially
all amortization of intangible assets related to the 1986
acquisitions of Dr Pepper and Seven-Up. During the second quarter
of 1994, the Company accepted a global tax settlement from the IRS
with respect to certain of the proposed adjustments relating to the
deductibility of a portion of intangible assets. As a result of the
settlement, the Company reduced its recorded deferred tax liabilities
by approximately $65.0 million. The corresponding effect of this
adjustment to deferred tax liabilities was applied as a reduction
of intangible assets for financial reporting purposes. If the
remaining proposed IRS adjustments are sustained, in whole or in
part, the Company's net operating loss carryforwards for federal
income tax purposes would be significantly reduced. The Company is
vigorously contesting the remaining proposed adjustments.
Management of the Company believes the ultimate resolution of the
remaining proposed adjustments will not have a material adverse
effect on the Company's financial condition or operating results.
F-16 (Continued)
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) OTHER LITIGATION
The Company and its operating subsidiary, Dr Pepper/Seven-Up
Corporation, is a defendant in various other lawsuits arising out
of the ordinary conduct of their business. In the opinion of
management, the resolution of these matters is not expected to have
a material adverse effect upon the Company's consolidated financial
condition or operating results.
(11) SUBSEQUENT EVENT
On January 25, 1995, Cadbury and the Company entered into a merger
agreement pursuant to which Cadbury, through a wholly-owned subsidiary,
will make a cash tender offer of $33 a share for the remaining out-
standing shares and share equivalents of the Company not already owned
by Cadbury. The board of directors of the Company has approved the offer
as a Permitted Offer (as defined) under the Company's Shareholder Rights
Plan (see note 5(a)) so that purchase rights do not become exercisable
under the Shareholder Rights Plan. Consummation of the transaction is
subject to the satisfaction of certain conditions, including approval
by Cadbury shareholders and antitrust approvals. On February 1, 1995,
Cadbury commenced a tender offer to acquire all issued and outstanding
shares of the Company not already owned by Cadbury at a price of $33
per share.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
-------------------------------------
First Second Third Fourth
-------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1994:
Net sales $185,741 197,389 201,928 183,957
Gross profit 153,984 164,513 167,806 155,062
Operating profit 47,695 55,265 52,839 47,767
Income before extraordinary item 17,696 23,814 21,976 14,213
Net income 9,584 23,814 20,747 12,374
Income per common share:
Before extraordinary item .26 .36 .30 .21
Net income $.14 .36 .28 .18
==== === === ===
Quarter
-------------------------------------
First Second Third Fourth
-------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1993:
Net sales $170,782 182,523 186,921 167,152
Gross profit 144,566 151,055 155,346 140,430
Operating profit 43,245 51,854 49,485 38,436
Income before extraordinary item 18,012 30,271 24,294 21,547
Net income 3,111 30,271 23,215 21,328
Income per common share:
Before extraordinary item .31 .46 .37 .32
Net income $.05 .46 .35 .32
==== === === ===
</TABLE>
F-17
<PAGE>
SCHEDULE I
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1994 1993
-------- ------
<S> <C> <C>
Other assets, principally deferred debt issuance costs, less
accumulated amortization of $1,544 in 1994 and $899 in 1993 $ 5,611 8,294
========= =====
LIABILITIES AND STOCKHOLDERS' DEFICIT
Deficit investment in Dr Pepper/Seven-Up Corporation, at equity $ 97,843 127,203
Long-term debt 252,101 301,427
Stockholders' deficit:
Common stock 617 608
Additional paid-in capital 416,203 406,728
Accumulated deficit (761,153) (827,672)
--------- --------
(344,333) (420,336)
Less treasury shares, at cost - -
Total stockholders' deficit (344,333) (420,336)
--------- --------
Total liabilities and stockholders' deficit $ 5,611 8,294
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
F-18
<PAGE>
SCHEDULE I, CONT.
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Equity in earnings of Dr Pepper/Seven-Up Corporation $ 94,246 78,245 33,012
Other income (expense):
Interest expense (30,718) (35,126) (71,513)
Other, net - (351) 343
-------- ------- -------
Total other income (expense) (30,718) (35,477) (71,170)
-------- ------- -------
Income (loss) before income taxes
extraordinary item and cumulative effect of
accounting change 63,528 42,768 (38,158)
Income tax benefit (14,171) (51,356) (29,744)
-------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of accounting change 77,699 94,124 (8,414)
Extraordinary item - extinguishment of debt, less applicable
income taxes 11,180 16,199 56,934
Cumulative effect of accounting change - - 74,800
Net income (loss) 66,519 77,925 (140,148)
Preferred stock dividend requirements - - 12,941
------- ------ --------
Net income (loss) attributable to outstanding
common stock $66,519 77,925 (153,089)
======= ====== ========
Income (loss) per common share:
Income (loss) before extraordinary item and
cumulative effect of accounting change $ 1.13 1.46 (.60)
Extraordinary item (.17) (.25) (1.60)
Cumulative effect of accounting change - - (2.11)
------- ------ --------
Net income (loss) $ 0.96 1.21 (4.31)
======= ====== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-19
<PAGE>
SCHEDULE I, CONT.
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 66,519 77,925 (140,148)
Amortization of debt discounts and deferred debt issuance
costs 30,718 35,126 65,302
Debt restructuring charge 2,039 3,790 6,104
Income taxes (14,171) (51,356) (31,411)
Equity in undistributed (earnings) losses of
Dr Pepper/Seven-Up Corporation (94,246) (73,125) 91,102
-------- -------- --------
Net cash used in operating activities (9,141) (7,640) (9,051)
-------- -------- --------
Cash flows from investing activities:
Sales of marketable securities with
maturities less than three months, net - - 31,166
Purchases of marketable securities - - (312,108)
Sales of marketable securities - - 366,733
Decrease in long-term note receivable
from Dr Pepper/Seven-Up Corporation - - 6,501
-------- -------- --------
Net cash provided by investing activities - - 92,292
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt - - 375,001
Payments on long-term debt (79,400) (115,512) (543,738)
Payment of refinancing costs - - (12,725)
Proceeds from sale of common stock - 305,366 -
Advances (to) from Dr Pepper/Seven Up Corporation 91,340 (84,622) 97,633
Repurchase of preferred stock (1,909) (98,383) -
Other (890) 791 588
-------- -------- --------
Net cash provided by (used in) financing activities 9,141 7,640 (83,241)
-------- -------- --------
Net change in cash and cash equivalents - - -
Cash and cash equivalents at beginning of year - - -
-------- -------- --------
Cash and cash equivalents at end of year $ - - -
======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-20
<PAGE>
SCHEDULE I, CONT.
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) GENERAL
The accompanying condensed financial statements of Dr Pepper/Seven-Up
Companies, Inc. (Company) should be read in conjunction with the
consolidated financial statements of the Company included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) INVESTMENTS
The Company's investments in Dr Pepper/Seven-Up Corporation (DP/7UP)
includes cumulative advances from DP/7UP of $104,821,000 at December 31,
1994.
(3) OBLIGATIONS, GUARANTEES AND COMMITMENTS
As of December 31, 1994, the Company had long-term debt of $252,101,000
in the form of 11 1/2% Senior Subordinated Discount Notes due 2002. In
addition, the Company has guaranteed the obligations under DP/7UP Credit
Agreement. See note 3 to the consolidated financial statements regarding
these obligations.
Also see notes 6, 7 and 10 to the consolidated financial statements of
the Company.
F-21
<PAGE>
SCHEDULE II
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION PERIOD
----------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 1,737 106 - 175 1,668
======== ====== ========= ====== =======
Accumulated amortization of intangible assets $111,434 13,104 - - 124,538
======== ====== ========= ====== =======
Accumulated amortization of deferred debt issuance costs $ 8,711 7,871 - - 16,582
======== ====== ========= ====== =======
Year ended December 31, 1993:
Allowance for doubtful accounts $ 1,573 274 - 110 1,737
======== ====== ========= ====== =======
Accumulated amortization of intangible assets $ 96,357 15,077 - - 111,434
======== ====== ========= ====== =======
Accumulated amortization of deferred debt issuance costs $ 1,508 7,203 - - 8,711
======== ====== ========= ====== =======
Year ended December 31, 1992:
Allowance for doubtful accounts $ 1,466 399 - 292 1,573
======== ====== ========= ====== =======
Accumulated amortization of intangible assets $ 81,245 15,112 - - 96,357
======== ====== ========= ====== =======
Accumulated amortization of deferred debt issuance costs $ 31,317 8,484 - 38,293(1) 1,508
======== ====== ========= ====== =======
<FN>
(1) Represents write-off of the accumulated amortization of deferred debt
issuance costs in connection with extinguishments of debt.
</TABLE>
F-22
<PAGE>
AMENDMENT TO EXECUTIVE SEVERANCE AGREEMENT
This Amendment, dated as of February 23, 1995 (the "Amendment") is between
Dr Pepper/Seven-Up Companies, Inc., a Delaware corporation (the "Company")
and John R. Albers (the "Executive").
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Executive are parties to an Executive
Severance Agreement dated as of August 27, 1991, as heretofore amended (the
"Agreeent"); and
WHEREAS, the Company, Cadbury Schweppes plc, an English company, and DP/SU
Acquisition Inc., a Delaware corporation, have entered into an Agreement and
Plan of Merger dated as of January 25, 1995 (the "Merger Agreement"); and
WHEREAS, the Merger Agreement provides that the Agreement be amended as
set forth below; and
WHEREAS, the Company and the Executive desire to amend the Agreement as
set forth below.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. AMENDMENT TO PARAGRAPH 5(b)(iii). The definition of "Good
Reason" is amended by amending subparagraphs (F) and (G) and adding new
subparagraph (H) to such definition:
(F) Any failure of the Company to obtain the express written
assumption of the obligation to perform this Agreement by any successor as
contemplated by paragraph 7;
(G) Any breach by the Company of any of the provisions of this
Agreement, any employment agreement between the Company and the Executive,
or any failure by the Company to carry out any of its obligations
hereunder; or
(H) Any other event or reason for which the Executive in his sole
discretion may choose to resign.
Section 2. SEVERABILITY. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, convenants and restrictions of this
<PAGE>
Amendment shall remain in full force and effect and shall in no way be
affected, impaired of invalidated.
SECTION 3. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Section 5. EFFECT OF AMENDMENT. Except as expressly modified herein, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
DR PEPPER/SEVEN-UP COMPANIES, INC.
By:
-------------------------------------
Nelson A. Bangs
Vice President and General Counsel
EXECUTIVE
----------------------------------------
John R. Albers
<PAGE>
AMENDMENT TO EXECUTIVE SEVERANCE AGREEMENT
This Amendment, dated as of February 23, 1995 (the "Amendment") is between
Dr Pepper/Seven-Up Companies, Inc., a Delaware corporation (the "Company")
and Ira M. Rosenstein (the "Executive").
W I T N E S S E T H
-------------------
WHEREAS, the Company and the Executive are parties to an Executive
Severance Agreement dated as of August 27, 1991, as heretofore amended (the
"Agreement"); and
WHEREAS, the Company, Cadbury Schweppes plc, an English company, and DP/SU
Acquisition Inc., a Delaware corporation, have entered into an Agreement and
Plan of Merger dated as of January 25, 1995 (the "Merger Agreement"); and
WHEREAS, the Merger Agreement provides that the Agreement be amended as
set forth below; and
WHEREAS, the Company and the Executive desire to amend the Agreement as
set forth below.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. AMENDMENT TO PARAGRAPH 5(b)(iii). The definition of "Good
Reason" is amended by amending subparagraphs (F) and (G) and adding new
subparagraph (H) to such definition:
(F) Any failure of the Company to obtain the express written
assumption of the obligation to perform this Agreement by any successor as
contemplated by paragraph 7;
(G) Any breach by the Company of any of the provisions of this
Agreement, any employment agreement between the Company and the Executive,
or any failure by the Company to carry out any of its obligations
hereunder; or
(H) Any other event or reason for which the Executive in his sole
discretion may choose to resign.
Section 2. SEVERABILITY. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, convenants and restrictions of this
<PAGE>
Amendment shall remain in full force and effect and shall in no way be
affected, impaired of invalidated.
SECTION 3. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Section 5. EFFECT OF AMENDMENT. Except as expressly modified herein, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
DR PEPPER/SEVEN-UP COMPANIES, INC.
By:
-------------------------------------
Nelson A. Bangs
Vice President and General Counsel
EXECUTIVE
----------------------------------------
Ira M. Rosenstein
<PAGE>
EXHIBIT 10.39
March 15, 1994
1
Dr Pepper/Seven-Up Companies, Inc.
Dear 2:
We are pleased to inform you of your selection to participate in the 1994
Performance Award Plan of the Dr Pepper/Seven-Up Corporation (the
"Corporation"). This Performance Award Plan (the "Plan") is designed to
permit certain key employees an opportunity to augment their annual base salary
compensation through cash bonus payments for assisting the Corporation in
meeting and/or exceeding certain specified annual objectives.
This is an annual Plan which will be operated only during the 1994 calendar
year. The Plan is not automatically renewable. This letter deals only with
arrangements with you for the performance period from January 1, 1994 through
December 31, 1994.
For achievement of the planned 1994 objectives of the Corporation, as described
below, you will earn a performance award bonus (hereinafter the "Bonus" or
"Bonuses") based upon the following criteria.
1. The basis upon which your Bonus, if any, under the Plan will be
determined is by the combined 1994 Corporate Fountain/Foodservice
planned sales volume for your area of 3 gallons (the "Goal"), as
follows.
Formula:
% Achievement of 1994 Goal
--------------------------
95% 100% 100%+
Percent of Base Salary* Earned
------------------------------
10% 15% Additional 1% for each percentage
point above plan to a maximum of 30%
of annual salary.
*Determined as of December 31, 1994
2. 100% of the Performance Award will be based on achievement of planned
sales volume. The maximum Award will be 30% of annual salary.
Achievement levels are graduated upward by full percentage points.
For example, achievement of 100.8% of plan will be paid as
achievement of 100%.
All Bonuses under the Plan will be reviewed by the Chief Executive Officer of
the Corporation and evaluated on the following criteria: expense control,
policy management, and general professional presentation.
<PAGE>
PAGE TWO
PLAN RULES AND RESTRICTIONS:
The implementation and interpretation of the Plan and the decision to pay any
Bonuses thereunder shall be at the sole discretion of the Corporation. The
Corporation reserves the right to amend the Plan, including individual
objectives and payment schedules during the 1994 calendar year or at any time
prior to paying any Bonuses to participants under the Plan. The sole right to
cancel the Plan or any Bonuses thereunder is also reserved by The Corporation.
Any participant that enters the Plan after the first month of the Calendar
year, whether through new hire or new job assignment, will have the Bonus
payment prorated from the date of entrance into the Plan. The specific
conditions of the Plan are as follows:
1. The final results of this Plan will be approved by the Chief Executive
Officer of the Corporation. Plan participants may not negotiate,
interpret, or contest such results.
2. Payment of all Bonuses will be made within 30 days of the date the
performance data is approved by the Chief Executive Officer of the
Corporation.
3. If you are transferred, change job titles or receive a new job assignment
within The Corporation during 1994, consideration will be given for the
payment of a prorated Bonus payment under the Plan based on the number of
months you held your previous position when compared to the achieved
results for that position for the full 1994 calendar year. If you are
assigned a new job which qualifies for participation in the Plan, you
will be notified at that time with confirmation in writing.
4. Termination of employment from The Corporation for any reason, other than
death or disability, prior to December 31, 1994, terminates an
individual's eligibility under the Plan and no payment will be made to
said individual, unless authorized by the Chief Executive Officer of The
Corporation.
5. If you are disabled or otherwise require an approved leave of absence
during the year, Bonuses will be paid at the sole discretion of the
Chief Executive Officer of The Corporation.
6. In the case of your death, The Corporation will review your individual
circumstances for consideration of payment of any Bonus.
7. This Plan and its provisions must be held strictly confidential by you.
Except as provided in the immediately succeeding sentence, disclosure of
this Plan or any confidential information in connection therewith to any
person or firm shall result in the termination of your participation in
the Plan if The Corporation, in its sole discretion, deems such
termination necessary. You may discuss the Plan and your participation
therein in confidence with your immediate supervisor as well as The
Corporation's Director of Human Resources and his designated Plan
Administrator.
<PAGE>
PAGE THREE
PLAN RULES AND RESTRICTIONS - continued
8. By signing this letter, you acknowledge (i) your understanding and
agreement to the provisions of this Plan and (ii) that any Bonus payments
thereunder are solely within the discretion of The Corporation.
9. Please return one copy of the signed letter to the Human Resources
Department for our records.
------------------------------- ---------------------------------
John R. Albers Plan Participant
Chief Executive Officer
JRA:jea
<PAGE>
EXHIBIT 22
DR PEPPER/SEVEN-UP COMPANIES, INC.
SUBSIDIARIES OF REGISTRANT
NAME STATE OF INCORPORATION
------------------------------ ----------------------
Dr Pepper/Seven-Up Corporation Delaware
<PAGE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Dr Pepper/Seven-Up Companies, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-69404) on Form S-8 of Dr Pepper/Seven-Up Companies, Inc. of our report
dated February 10, 1995, relating to the consolidated balance sheets of
Dr Pepper/Seven-Up Companies, Inc. and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, stockholders'
deficit and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1994, which report appears in the
December 31, 1994 annual report on Form 10-K of Dr Pepper/Seven-Up Companies,
Inc. Our report refers to a change in the method of accounting for income
taxes.
KPMG Peat Marwick LLP
Dallas, Texas
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 76,724
<ALLOWANCES> 1,668
<INVENTORY> 16,648
<CURRENT-ASSETS> 144,067
<PP&E> 51,610
<DEPRECIATION> 33,003
<TOTAL-ASSETS> 608,718
<CURRENT-LIABILITIES> 201,520
<BONDS> 252,101
<COMMON> 617
0
0
<OTHER-SE> (344,727)
<TOTAL-LIABILITY-AND-EQUITY> 608,718
<SALES> 769,015
<TOTAL-REVENUES> 769,015
<CGS> 127,650
<TOTAL-COSTS> 127,650
<OTHER-EXPENSES> 437,693
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 80,452
<INCOME-PRETAX> 122,290
<INCOME-TAX> 44,591
<INCOME-CONTINUING> 77,699
<DISCONTINUED> 0
<EXTRAORDINARY> 11,180
<CHANGES> 0
<NET-INCOME> 66,519
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
</TABLE>
<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
BT and DLJ are acting as the Company's financial advisors in connection
with the Offer and the Merger. Pursuant to its agreement with the Company, BT
is entitled to a transaction fee of $4,500,000 (less amounts previously paid
by the Company in connection with the Company's retention of BT, including
$250,000 which became payable at the time the opinion of BT referred to in
Item 4 was delivered), which shall become payable in cash upon the
acquisition by the Purchaser of fifty percent (50%) or more of the Shares.
Pursuant to its agreement with the Company, DLJ is entitled to a transaction
fee of $4,500,000 (less amounts previously paid by the Company in connection
with the Company's retention of DLJ, including $250,000 which became payable
at the time the opinion of DLJ referred to in Item 4 was delivered), which
shall become payable in cash upon the acquisition by the Purchaser of fifty
percent (50%) or more of the Shares. In addition, whether or not the Offer or
the Merger is completed, the Company has agreed to reimburse each of BT and
DLJ periodically for their respective reasonable out-of-pocket expenses,
including the fees and disbursements of their counsel, and to indemnify each
of BT and DLJ against certain expenses and liabilities incurred in connection
with their engagement, including liabilities under Federal securities laws.
Except as set forth above, neither the Company nor any person acting on
its behalf has or currently intends to employ, retain or compensate any
person to make solicitations or recommendations to the stockholders of the
Company on its behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth in the following sentences, to the best of the
Company's knowledge, no transactions in the Shares have been effected during
the past 60 days by the Company or by any executive officer, director,
affiliate or subsidiary of the Company. John R. Albers acquired 8.7633 Shares
on December 20, 1994 and 7.0175 Shares on January 18, 1995 pursuant to the
Company's employee stock purchase plan. On January 23, 1995, Mr. Albers made
separate gifts of 200,000 Shares and 20,000 Shares for charitable purposes.
On December 21, 1994, True H. Knowles, Executive Vice President of the
Company, contributed 110,296 Shares to the Knowles Charitable Remainder
Unitrust.
(b) To the best of the Company's knowledge, all of the Company's executive
officers and directors who own shares of Common Stock currently intend to
tender all of their Shares pursuant to the Offer. In addition, the Director
Stockholders have executed the Stockholders Agreement, under which they have
agreed to tender all of their Shares in the Offer. See "Stockholders
Agreement" above.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary thereof; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that
relate to or would result in one or more of the events referred to in Item
7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
CERTAIN LITIGATION. On January 23, 1995, a date prior to the announcement
that the Company and Parent had entered into the Merger Agreement, three
putative class action complaints were filed in the Court of Chancery of the
State of Delaware. The complaint in TUCHMAN V. ALBERTS, ET AL. [sic], names
27
<PAGE>
the Company and certain directors and generally alleges that the defendants
breached their fiduciary duties to the Company by failing to "shop" the
Company and by waiving the application of the Company's Rights Agreement with
respect to Parent. The complaint seeks relief including an injunction
against implementing the Merger Agreement, a declaration voiding the Rights
Agreement or declaring the waiver of the Rights Agreement void, a requirement
that the directors "shop" the Company and unspecified compensatory damages
and expenses, including attorneys' fees.
The complaint in BALAN V. DR PEPPER/SEVEN-UP COMPANIES, ET AL. generally
alleges that (i) the director defendants will be in breach of their fiduciary
duties if they fail to establish a level playing field and encourage bona
fide offers by potential acquirors for the purchase of the Company, (ii) the
directors have a conflict of interest between their personal desire to remain
in office and their fiduciary obligation to maximize shareholder value and
(iii) the negotiating process with Parent precludes opportunities for other
potential purchasers to exercise interest in acquiring the Company. The
complaint seeks relief including ordering the defendants to carry out their
fiduciary duties to plaintiff and unspecified compensatory damages and
expenses, including attorneys' fees.
The complaint in SHAEV V. DR PEPPER/SEVEN UP COMPANIES, ET AL. alleges
that the defendants have breached their fiduciary duties by failing to
auction the Company and by failing to take adequate steps to determine the
value of the Shares. The complaint also alleges that the directors' conflict
of interest precludes them from representing the interests of the Company's
public stockholders. Relief requested includes a declaration that the
defendants have breached their fiduciary duties and committed a gross abuse
of trust, an injunction against the proposed merger and unspecified
compensatory damages and expenses, including attorneys' fees.
The defendants believe each of the three complaints described above are
without merit and intend to defend these cases vigorously.
The complaints in KING V. DR PEPPER/SEVEN-UP COMPANIES, ET AL., filed on
October 26, 1994 in the U.S. District Court for the Northern District of
Texas, Dallas Division, alleges that the defendants violated Section 10(b)
and Rule 10b-5 under the Exchange Act by failing to reveal the true status of
merger discussions between the Company and Parent. The complaint alleges that
the defendants knowingly or recklessly engaged in a plan to depress the
market price of the Company's securities by misstating and concealing
material information concerning the true status of merger discussions with
Parent. In addition, the complaint alleges that John Albers violated Section
20(a) of the Exchange Act by failing to disseminate truthful information with
respect to the Company's business. Relief requested includes unspecified
damages and expenses (including attorneys' fees). As a result of defendants'
motion to dismiss based on the plaintiff's failure to plead fraud with
specificity and failure to state a claim for securities fraud, on January 24,
1995, the judge in the suit issued an Order to File Amended Complaint to the
plaintiff, which gives the plaintiff 20 days in which to amend her complaint
to cure the deficiencies noted in the order. The defendants believe the
complaint is without merit and intend to defend the case vigorously.
Another class action suit, styled SARNOFF V. DR PEPPER/SEVEN-UP COMPANIES,
ET AL. was filed in the District Court for the 44th Judicial District of
Texas in Dallas County, Texas on October 28, 1994 wherein the plaintiff
alleges, among other things, that the defendants breached their fiduciary
duties to the Company's stockholders (i) in order to entrench themselves in
office by maintaining the Rights Agreement, which chilled the marketplace so
that they could negotiate only with Parent in order to receive generous
severance packages and (ii) by reasons of their refusal to negotiate with
other potential acquirors on the same playing field as they created for
Cadbury. The defendants believe the complaint is without merit and intend to
defend the case vigorously.
On September 3, 1993, Adele Brem, a purported holder of shares of Common
Stock of the Company, filed a lawsuit styled ADELE BREM V. DR PEPPER/SEVEN-UP
COMPANIES, ET AL. relating to the adoption by the Company of the Rights
Agreement in Delaware Chancery Court. The complaint is filed
individually on behalf of the plaintiff and purportedly on behalf of
all holders of Common Stock (other
28
<PAGE>
than the individual defendants), and names the Company and each person that
was then a member of its Board of Directors as defendants. In the complaint,
the plaintiff alleges, among other things, that in implementing the Rights
Agreement, the individual defendants have wrongfully misled the shareholders
and the investing community regarding the purposes and effect of the Rights
Agreement, have violated their fiduciary duties owed to the plaintiffs and
the class, have not and are not exercising proper and independent business
judgment, have acted and are acting to the detriment of the Company and its
public shareholders for their own personal benefit and have pursued a course
of conduct designed to entrench themselves in their positions of control
within the Company. The plaintiff seeks a judgment ordering, among other
things, that defendants rescind the adoption of the Rights Agreement, as
well as unspecified damages, attorney's fees and other relief.
On September 10, 1993, Terrence Pearman, a purported holder of shares of
Common Stock of the Company, filed a second lawsuit styled TERRENCE PEARMAN
V. DR PEPPER/SEVEN-UP COMPANIES, ET AL. relating to the adoption by the
Company of the Rights Agreement in Delaware Chancery Court against the
Company and each then-member of the Board of Directors. The complaint is
filed individually on behalf of the plaintiff and purportedly on behalf of
all holders of Common Stock, and makes substantially the same allegations
and seeks substantially the same relief as made and sought in the lawsuit
brought by Adele Brem.
The Company believes that the two foregoing lawsuits are without merit and
that, among other things, the individual defendants have not breached any
fiduciary duties in adopting the Rights Agreement and that the Rights
Agreement is fair and in the best interests of the Company and its
shareholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
1 Letter, dated February 1, 1995, from the Chairman of the Board
and President to the Stockholders of the Company
2 Merger Agreement
3 Severance Benefits Plan
4 Form of Indemnification Agreement
5 Extract Production Agreement by and among Cadbury Beverages
Inc., The Seven-Up Company and Dr Pepper Company
6 Post-Mix Concentrate/Syrup Royalty Agreement by and between
Cadbury Beverages Inc. and Dr Pepper Company
7 Confidentiality Agreement
8 Stockholders Agreement
9 Opinion of BT Securities Corporation, dated January 25, 1995
10 Opinion of Donaldson, Lufkin & Jenrette Securities Corporation,
dated January 25, 1995
11 Press Release of the Company and Parent, issued January 26, 1995
</TABLE>
29
